Wednesday, June 09, 2004

If The FBI Probes A Company, Do You Sell?

Certain events invite contrarian calls on stocks: a war breaking out, a chief executive being named Time magazine's Person of the Year, and so on. But what about when your favorite stock gets knocked by a government investigation? Buying might not be such a bad idea. Consider the case of ITT Educational Services

In February, ITT Educational Services revealed that the FBI and other federal agents, searching at the company's Indianapolis headquarters and at several school locations, had seized information relating to the firm's placement and retention figures, graduation rates, grades, admissions and salaries of graduates.

ITT's share price, at the time not far from a 52-week high of $61, promptly sunk to below $30. The stock--despite subsequent announcements of an SEC investigation, shareholder lawsuits, and other woes--has recovered to a recent $43. But the company, in Value Line's words, remains "under a cloud of suspicion." On Wall Street, 12 of 17 analysts tracked by Thomson First Call rate the stock a "hold" or a "sell."

To get the contrarian take, we checked in last week with one of the five bulls on the stock, Richard Close, an analyst in Nashville with Jeffries. "I don't think these guys were doing something to intentionally defraud the government," he says.

Full story at