4-Star Stocks Poised to Pop: First Marblehead

Based on the aggregated intelligence of 165,000-plus investors participating in Motley Fool CAPS, the Fool's free investing community, student loan administrator First Marblehead (NYSE: FMD  ) has earned a respected four-star ranking.

With that in mind, let's take a closer look at First Marblehead's business and see what CAPS investors are saying about the stock right now.

First Marblehead facts

Headquarters (Founded)

Boston (1991)

Market Cap

$274.3 million

Industry

Consumer finance

Trailing-12-Month Revenue

$34.3 million

Management

CEO Daniel Meyers (since 2008)

CFO Kenneth Klipper (since 2008)

Return on Equity (Average, Past 3 Years)

(42.9%)

Competitors

JPMorgan Chase (NYSE: JPM  )

SLM (NYSE: SLM  )

Sources: Capital IQ (a division of Standard & Poor's) and Motley Fool CAPS.

On CAPS, 94% of the 2,829 members who have rated First Marblehead believe the stock will outperform the S&P 500 going forward. These bulls include All-Stars kmote and cdulan, both of whom are ranked in the top 20% of our community.

A few months ago, kmote kindly updated Fools on First Marblehead's regulatory worries: "Govt lifted their cease and desist order. They are beginning to get things rolling again by hiring staff."

About a year ago, the U.S. Office of Thrift Supervision ordered First Marblehead's Union Federal banking unit to halt operations, as its loan portfolio was concentrated too highly in private education loans. Thanks to the announced sale of those student loans back in October, however, Union Federal finally got the go-ahead in March to get back to business.

But First Marblehead still has to compete with education finance king SLM and the likes of JPMorgan and Wells Fargo, which both continue to provide fee-based origination and servicing activities. Those financial giants have the scale to possibly, as First Marblehead's 10-K warns, "adopt more aggressive pricing policies in order to attract potential clients."

Nevertheless, All-Stars such as cdulan believe First Marblehead's expertise in the field should allow it to thrive:

The government lifted the cease and desist order now that they sold off their complete student loan portfolio. So now they can get back into the business in a much better market climate than before. ...

It is impossible to believe that the private student loan securitization market is permanently impaired. There is plenty of supply of private student loans to be made out there. There is plenty of demand for it from investors due are strict default laws on student loans. [First Marblehead's] servicing capabilities have proven to decrease default rates and increase recovery rates, crucial for student loan securitization investment returns.

So I think there is a market for them, it just has not reemerged yet. But I am confident it will.

What do you think about First Marblehead, or any other stock for that matter? If you want to retire rich, you need to put together the best portfolio you can. Owning exceptional stocks is a surefire way to secure your financial future, and on Motley Fool CAPS, thousands of investors are working every day to find them. CAPS is 100% free, so get started!

Fool contributor Brian Pacampara owns no position in any of the companies mentioned. The Fool's disclosure policy always gets a perfect score.


Read/Post Comments (2) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 27, 2010, at 11:47 AM, Jgrimm4 wrote:

    Is pricing power more important then signing a deal with a competitor which will only make your competitor stronger?

    I guess we will see. I am not sure I can see bigger banks signing deals with JPM, Wells Fargo or even SLM, but I am no oracle.

  • Report this Comment On October 20, 2010, at 9:22 PM, singlemaltscotch wrote:

    It's been nearly 3 months since the "aggregated intelligence of 165,000-plus investors" pronounced FMD as "ready to pop". Hmm. Maybe this "aggregated intelligence" is more like "aggregated wishful thinking".

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