As the recession continues, stock is rising in industries that profit from hard times. Pawn brokers, payday lenders, debt collectors and discount stores are more profitable than ever. Brokers are recommending buying stock in these sorts of companies rather than traditionally higher-end investments.
Recession continues as employment falls
The unemployment rate rose to 9.2 percent in June, making many stocks plummet. The number of people living below the poverty line has risen to one in seven, the highest since 1994. Consumer spending has dropped for two months in a row. Times are hard, and nobody knows if or when they will get better.
Profiting from hard times
Some industries profit from bad times. Stocks for many pawnbrokers, payday lenders, discount stores and debt collectors are on the rise. And while that may raise ethical issues for some, stock brokers are recommending buying stocks from many of these companies.
David Rosenberg, an economist at the money management firm Gluskin Sheff, said, “People are broke. They’re all chasing value. It’s a seismic shift in mindset.”
Pawnbrokers and payday lenders on the rise
John Coffey Jr., an analyst with Sterne, issued a report in June urging stock buyers to seek out Ezcorp (EZWP), a firm that owns pawn shops and makes payday loans. The stock has gone up an average of 48 percent for the last five years. Coffey argued that the stocks were worth more than than their cost by a third and would most certainly go up. Within a few hours, the stock rose by 7 percent and is now worth double what it was a year ago.
Payday lenders are increasingly becoming a good investment. Advance America Cash Advance Centers (AEA), has seen the price of its stock double in the last year. Cash America International Inc. (CSH) is up 64 percent from a year ago.
Debt collectors also making a profit
The same holds true for many other companies that thrive on financial hardship. The profits for San Diego based debt collector Encore Capital Group (ECPG) are up 59 percent from last year. This is despite the fact that the company has faced class action lawsuits in many states concerning its debt collection practices.
Some experts disagree
Some experts believe that investing in these kinds of companies is not as safe as it may seem. They say the stocks are as likely to fall as to rise. Should the economy recover and fewer people become financially stressed, stock for these companies will drop drastically. And if the economy should continue to slip, even those companies will find less traffic.