Economy Down, Pawn Stocks Up - Investment Ideas

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Posted: Sep 16, 2011 12:01 AM
Anyone searching for a counter cyclical stock that benefits from high unemployment and a weak credit market needs to start looking at pawn and payday lenders. I'm sure images of toothless criminals, shady back-alley deals and missing gold chains come to more than a few minds. But a closer look at the group reveals a very legitimate industry that has seen big gains over the last two years in the weak consumer environment.

High Unemployment

At the very top, high unemployment rates have forced consumers to get creative with their funding. That has many people selling old possessions like musical instruments and jewelry in order to fund their daily operations. That has pushed a huge wave of business into the hands of the pawn stores, which provide a regulated environment for the exchange of goods between two willing participants.

Limited Credit

The battered credit market has also been a boon for the industry, where its common to see payday lending services paired with a pawn operation. In the old days, before the big financial crisis of 2008, credit was much easier to come by, providing a trusted source of liquidity for many households across the country. But with the big banks paring down on their risk and reigning in their credit exposure, many consumers who relied on their credit card to get them through the end of the month were simply out of luck. They have now turned to payday lending services, where many people take a cash advance against a pending paycheck in order to hold them over until payday.

Industry Consolidation

And finally, on a wave of impressive sales and earnings growth, the industry has gone through an unprecedented cycle of consolidation over the last few years. That has increased the industry's domestic and international presence while reducing costs through operational efficiencies, a powerful one-two punch for sustained earnings growth.

So as you can see, there are more than a few reasons to be seriously bullish on the pawn and payday lending industry. Here are a few top names in the space.

Top Three Pawn Stocks

First Cash Financial Services (FCFS) provides both pawn and payday lending services and has a market cap of $1.56 billion. This Zacks #2 Rank stock has been on a tear in 2011, handily outperforming the market with a whopping 62% gain. That movement has been supported by an average earnings surprise of 7% over the last four quarters and bullish 20% growth projection.

EZCorp (EZPW) is involved in both pawning and payday loans, operates in Canada, Mexico and the United States and has a market cap of $1.66 billion. EZPW has an average earnings surprise of 9% over the last four quarters and a bullish growth projection of 20%. But in spite of solid 22% gain, shares still have value, with a PEG ratio .6 well below the benchmark of 1 for value.

And finally, we have Cash America International, Inc. (CSH), a Zacks #2 Rank stock that is up more than 50% on the year. The pure payday lender has an average earnings surprise of 13% over the last four quarters and a bullish 15% growth projection. And with a PEG ratio below 1 as well, CSH offers a nice combination of growth and value.

Michael Vodicka is the Momentum Stock Strategist for Zacks.com. He is also the Editor in charge of the Zacks Momentum Trader Service.
 
CASH AM INTL (CSH): Free Stock Analysis Report
 
EZCORP INC CL A (EZPW): Free Stock Analysis Report
 
FIRST CASH FINL (FCFS): Free Stock Analysis Report
 
Zacks Investment Research


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John Ransom Congress Likely to Cram Down Solyndra Billionaire
Political Calculations Gas Prices, the Unemployment Rate and Desperation
Mike Shedlock Hold on to Your Homes: Mortgage Default Notices Surge
Stewart Scott The Evolution of a Pakistani Militant Network
Bill Tatro Fire Foreign Workers; Hire Americans
Tony Marsh Obama Sends American Con Act to Congress
David Malpass Europe Tilting a Bit Positive
Jeff Carter Dems Aim to Tax Fund Business
Eric Singer Time for Republican Jujitsu on Social Security
Michael Vodicka Economy Down, Pawn Stocks Up - Investment Ideas
Sheraz Mian Inflation, Jobs & Manufacturing - Analyst Blog
Bill Wilton NetEase.Com - Aggressive Growth
Email Ransom thfinance@mail.com
Twitter http://twitter.com/#!/bamransom