Helping your kids with their educations can be an incredibly expensive proposition. Considering tuition, room, and board, the total cost can exceed $30,000 per year, even for an in-state public school. Go out of state or to a private university, and even that price tag can look cheap by comparison.
To figure out ways to cover those massive costs, we asked three Motley Fool contributors to each name a company that could help you send your kids to college. They came up with SLM Corp (NASDAQ: SLM), Activision Blizzard (NASDAQ: ATVI), and Starbucks (NASDAQ: SBUX). Read on to find out why and determine if you can see a path for one or more of them to play a role in your kids’ educations.
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This stock can make taking out a student loan a bit less painful
Rich Smith (SLM Corp): If they haven’t figured it out yet, your kids will soon learn: College costs a lot — as much as three times what it cost just 30 years ago, when I was in school.
In fact, college costs so much these days that chances are good your kids will need to take out a loan at some point — if not right away to get an undergraduate degree, then for a master’s, for law school, or for medical school in the future.
And, chances are also good that that loan will come from SLM Corp, aka “Sallie Mae,” the nation’s largest educational lender.
So, if you know that’s likely, why not get ahead of the curve? By investing in SLM today, at its present valuation of less than 7 times earnings, you’ll own a piece of the premier student lender at a price 30% below what it cost a year ago. In the years leading up to Junior heading off to college, you’ll benefit from SLM’s respectable 1.5% dividend yield. I suspect you’ll also enjoy more than a little capital appreciation. After all, 7 times earnings is a very low price to pay for a stock like SLM, where earnings are expected to grow at 13.5% annually over the next five years.
And, if push comes to shove and your kids do take out college loans, they can take comfort in the fact that at least part of any loan payments they make will remain “in the family,” as any profits they generate will accrue to you, an SLM shareholder.
This gaming giant still looks like a long-term winner
Keith Noonan (Activision Blizzard): If your kids happen to be video game fans, there’s a good chance they’re familiar with titles in Activision Blizzard’s catalog. The company is known for big franchises like Overwatch, Call of Duty, World of Warcraft, and Candy Crush Saga, and it has been one of the industry’s most successful players over the last decade — even though it’s recently hit a bit of a rough patch.
The game-maker and its stock haven’t had an easy time over the last year, as declining performance for some of the company’s franchises has put a damper on sales and earnings and dragged its share price down roughly 30% over the stretch. Activision Blizzard opted to sever its relationship with game developer Bungie and end support for the Destiny franchise after the series’ latest entry failed to meet expectations, and weaker engagement for other properties has also been an issue, but the company still looks primed to be a strong performer over the long term.
Activision Blizzard has historically been mostly concentrated on releasing games for the console and PC platforms, but the publisher is pivoting to focus more on mobile because that’s where most of the industry growth is going to be happening. The global games market will continue to reach a greater number of players worldwide as smartphones become increasingly ubiquitous and streaming starts to take off as a distribution method. The company’s strong franchise catalog and development resources put it in a good position to benefit from industry growth.
A report from GlobalData suggests that the global video game market could be worth $300 billion in 2025, up from annual sales of $131 billion in 2018. There’s also plenty of untapped opportunity for Activision Blizzard. And while its yield is relatively small at roughly 0.8%, Activision Blizzard has been boosting its payout at a quick pace over the last eight years and still sports a low payout ratio.
Tuition reimbursement makes college incredibly affordable
Chuck Saletta (Starbucks): One of the best benefits Starbucks offers its associates is a tuition reimbursement program. According to the Starbucks’ website:
Every benefits-eligible U.S. partner working part- or full-time receives 100% tuition coverage for a first-time bachelor’s degree through Arizona State University’s online program. Choose from 80 diverse undergraduate degree programs, and have our support every step of the way.
To be eligible, you have to be benefits-eligible and have worked for the company for a total of 240 hours over the prior three months before enrolling, which works out to around 20 hours a week. That means you don’t have to juggle full-time work and full-time school to get significant help toward your degree, but you do have to work consistently.
If money is tight, Starbucks’ program is an incredible way to help you get your kids through college. Aside from the work requirement, the main thing to note is that Starbucks’ program reimburses tuition. That means your student needs to cover the first set of courses, but they can then largely cover the remaining ones by rolling the reimbursement check from one class into the next one.
From an investment perspective, Starbucks is expected to increase its earnings by around 13% annualized over the next five or so years. That growth plus its 1.5% yield give investors a chance at a decent return over time, assuming the company’s stock is fairly valued today. With a price of around 31 times its anticipated forward earnings, though, it’s a little challenging to make the case that Starbucks’ shares are cheap today.
As a result, investors with children on their way to college in the near future may want to choose Starbucks as a stock to help cover that tuition. Especially after its substantial run-up thus far this year, those gains can go a long way toward taking the dent out of the price of an education.
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Chuck Saletta has no position in any of the stocks mentioned. Keith Noonan owns shares of Activision Blizzard. Rich Smith has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Activision Blizzard and Starbucks. The Motley Fool has a disclosure policy.
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