Daily Gains Letter

EZCORP and Green Dot to Profit from America’s Coming Reckoning?

By for Daily Gains Letter |

EZCORP There’s a financial reckoning coming, folks. The easy money pushed through the financial system and economy by the Federal Reserve over the past several years may have given us this six-year bull stock market, but it has also allowed personal debt loads to amass. Heck, even the government has accumulated in excess of $18.0 trillion in debt. But there’s an investment opportunity that could emerge from this.

Investment Opportunity Coming as Interest Rates Rise?

For now, with interest rates near zero, everything is fine. But rates will likely begin to move higher by as early as halfway through this year. With higher rates come a heavier debt burden and financing costs, which will eat the disposable income consumers would otherwise use for spending.

Bankrate.com released a survey that pointed to the growing build-up of debt by Americans. In a survey of 1,000 adults, it was found that 37% have credit card debt that is equal to or greater than their emergency savings. This doesn’t even include other debts, such as mortgages or loans.

What this means is that we could see a financial collapse as interest rates rise. There are already 48 million Americans using food stamps, and this may increase. But while the situation could surely worsen, there will be an investment opportunity. To play this scenario, look for companies that can benefit from a declining middle class and those struggling with their finances.

How to Profit from Rising Interest Rates and Debt: Two Stocks to Watch

A good example of the type of stock to watch during this potential investment opportunity is EZCORP, Inc. (NASDAQ/EZPW), which has a share price of $10.27 and a market cap of $551 million. EZCORP is a provider of specialized financial services to hardened groups seeking money to make ends meet. The company offers services such as cash advances in return for goods sold via company-owned pawnshops, short-term unsecured loans, and pre-paid debit cards.

The company’s network includes about 1,400 locations and branches. About 70% are domestic with the remainder in Mexico (20%) and Canada (9%). The company also offers online loans in the United Kingdom.

The stock has continued to underperform the S&P 500, with a 24.03% decline over the past 52 weeks versus a 13.92% advance by the index. This is what makes the stock a good example of a potential investment opportunity for aggressive accounts.


Chart courtesy of www.StockCharts.com

A second stock to look at as an example of how to play the potential investment opportunity on America’s declining middle class and massive debts is Green Dot Corporation (NASDAQ/GDOT), with a share price of $15.73 and a market cap of $804 million. The stock is down from its 52-week high of $24.47 in October 2014.

Green Dot provides reloadable pre-paid debit cards as well as cash-loading and transfer services at about 100,000 retail locations in the country. The company’s cards are sold at major mass market retailers, including Wal-Mart Stores Inc. (NYSE/WMT), Family Dollar Stores, Inc. (NYSE/FDO), Dollar General Corporation (NYSE/DG), Dollar Tree, Inc. (NASDAQ/DLTR), and The Home Depot, Inc. (NYSE/HD).

My thinking on Green Dot is that those in financial need will need more specialized services, which could make a stock like this one a great potential investment opportunity. The company had 4.7 million active cards in circulation as of the end of 2014.

GOOT Green Dot Corp

Chart courtesy of www.StockCharts.com

So while debt levels continue to rise, an investment opportunity may show in companies such as those I mentioned, which are great examples of how investors could play America’s financial duress.

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