5-Star Stocks Ready to Pop: Portfolio Recovery Associates

Based on the aggregated intelligence of 110,000 investors participating in Motley Fool CAPS, the Fool's free investing community, bad-debt collector Portfolio Recovery Associates (Nasdaq: PRAA) has earned a coveted five-star ranking. Our data has shown that five-star stocks outperform the market by a significant margin; conversely, one-star stocks have woefully lagged the market average.

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

Portfolio Recovery facts

Headquarters (Founded)	Norfolk, Virginia (1996)
Market Cap	$585.91M
Industry	Specialized finance
TTM Revenue	$230.84M
Management	Co-Founder/CEO Steven Frederickson Co-Founder/CFO Kevin Stevenson
Return on Equity (avg. last three years)	19.7%
CAPS players bullish on PRAA also bullish on	Nuance Communications (Nasdaq: NUAN), First Marblehead (NYSE: FMD), Middleby (Nasdaq: MIDD)
CAPS players bearish on PRAA also bearish on	General Motors (NYSE: GM), Citigroup (NYSE: C), Netflix (Nasdaq: NFLX)

Sources: Capital IQ, a division of Standard & Poor's, and Motley Fool CAPS. TTM = trailing 12 months.

Over on CAPS, fully 885 of 922 of the All-Star players who have rated Portfolio Recovery -- some 96% -- believe the stock will outperform the S&P 500 going forward. These All-Star bulls include TMFOrangeblood and pjani06, both of whom are ranked in the top 10% of our community.

In June 2007, TMFOrangeblood said Portfolio Recovery is "the best company, by far, in a booming industry. Management is talented, dedicated, and disciplined. I believe investors with a long-term outlook will not be disappointed."

A more recent pitch by pjani06 last month agrees with that bullish attitude, highlighting the stock's current levels:

Great entry point for a company turning cheap debt paper into real cash earnings. ... especially when you can buy the debt pennies on the dollar. financial companies themselves are on firesale today... this company is well positioned to purchase the 'worthless' debt these banks are desperate to get rid of to keep favorable capital levels in the eyes of lenders, regulatory agencies, and the investor community. PRAA is in the right place, at the right time, and at today's valuations, at the right price.

A Goldman Sachs fund, a recovery in LBO market

Goldman Sachs (NYSE:GS) has raised $10 billion to invest in existing LBO loans. According to the FT, the investment house plans to make money by "taking advantage of a gap in the financing markets created by the credit crisis." In other words, Goldman believes that the problems in the lending market have driven leveraged buy-out loans below their logical values. Panic has created opportunity.

While the news may be good for banks that hold some of these loans and do not want to write them off if they fail, Goldman is making a bet beyond the fact that LBO loans may be selling at a discount now. Goldman is essentially betting the economy will get better in the fairly near-term.

For many of these loans to perform well, the economy has to avoid a deep recession. Even loans with reasonable credit ratings, debt in companies with strong prospects and earnings, could fail if the general business conditions deteriorate into a prolonged period of negative growth. Under such circumstances, Goldman could pick relatively safe debt and still get burned.

JBW awarded largest ever debt recovery company contract

Debt management and enforcement organisation JBW has won the biggest contract ever awarded to a debt recovery company.

The prestigious contract is with the Department for Work and Pensions, with JBW focusing on Child Support debt collection.

In addition to the DWP appointment, JBW has also been awarded six further key new contracts in recent months, to include:

London Borough of Barnet - a 4-year Road Traffic debt collection contract

London Borough of Sutton - a high profile 2-year Group debt contract concerning Council Tax, Business Rates and Road Traffic debt

London Borough of Tower Hamlets - a 3-year high profile Group debt contract in respect of Council Tax, Business Rates and Road Traffic debt

Mole Valley District Council in Surrey, the London Borough of Bromley and Southend Borough Council - full parking-related debt recovery services


About JBW
JBW is a leading debt management organisation with a high regard for the community it serves. Working to strict ethical and professional principles, the organisation provides its clients with effective debt management and enforcement services that at the same time support debtors’ social and financial wellbeing.

Working in partnership with its clients, the organisation’s uniformed office and field-based staff are courteous, efficient, accessible and fair, which, in conjunction with an innovative approach to training, management and execution, ensure a highly proficient and professional operation.

Services include:
Debt management for the commercial sector, investigation and process serving, and enforcement and debt management for local authorities including for road traffic-related offences, council tax and NNDR.

Charitable work
JBW’s Chairman, Jamie Waller, is Chairman of The Imps Start Trust - a non-profit-making organisation that educates young people through a challenging programme of activities. www.impsonline.com

Accreditations
ISO 9001; ISO 14001; ISO 27001

Memberships
Association of Civil Enforcement Agencies
Enforcement Services Association
The ESA (Certificated Bailiffs Association)
Credit Services Association
British Parking Association

jbw.co.uk

BBB Connecticut Reports Rogue Debt Collectors Breaking the Law

Consumers’ most common complaints concern rude telephone calls, threats to have them arrested, using other forms of intimidation and violating federal law by ignoring the Do Not Call Registry. Some victims have even received repeated telephone calls on their cellular and home telephones.

According to Connecticut Better Business Bureau President Paulette Hotton, so-called third party debt collectors are going far beyond what the law permits them to do.

“Legitimate debt collection agencies know the rules and follow them, but some debt is sold to other companies which use threats and intimidation, and disregard an industry code of ethics that prohibits these kinds of behaviors.”

Under the Fair Debt Collection Practices Act, debt collection companies are prohibited from abusive tactics to frighten people in debt, and obliged to treat debtors fairly.

Some of the worst cases involve collectors calling neighbors, friends and employers in an effort to shame debtors into paying up.

A federal court recently entered an order against a Florida debt collection agency for sending misleading letters and making abusive telephone calls falsely claiming consumers would be sued, their wages garnished and property seized unless they paid up.

Consumers have a right to a written notice within five days after being contacted by a debt collector spelling out the name of the company, how much money you owe and how you can contest their claim if you believe you don’t owe the amount stated in the document.

Though such a letter does not protect you from being sued for the debt, collectors are not allowed to contact you after receiving a letter asking them to stop, though they may still inform you what action they intend to take.

The Fair Debt Collection Practices Act protects consumers from rogue debt collectors in several ways, prohibiting them from:

1.Calling you before 8:00 a.m. or after 9:00 p.m. unless you consent.

2.Misrepresenting the amount of money you owe.

3.Using vulgarity or threats, such as claiming they will put a lien on your property or file a lawsuit, unless they intend to do so through legitimate procedure.

4.Contacting you at work if they know your employer disapproves.

5.Claiming they will confiscate your federal benefits such as Social Security or retirement accounts.

Some debt has a statute of limitations. In Connecticut, it is 6 years.

The debt is still collectible but the collector loses the right to sue consumers over money owed. A cautionary note however: If you make any payment within that period, the statute of limitations is renewed for another 6 years, giving the collector the right to sue for payment once again.

If you feel you are being harassed or treated unfairly by a debt collector, file a complaint with the Federal Trade Commission (FTC) at 877-HELP (877-4357) or visit www.ftc.gov.

You should also contact the Connecticut Attorney General’s office at (860) 808-5030 or online at www.ct.gov/ag, and file a report with your Better Business Bureau so other consumers can verify if complaints have been filed about a particular debt collection company.

Truth-telling is the secret to recovery

Despite some recent relief for financial stocks, Oppenheimer & Co. analyst Meredith Whitney says the financial markets won't be able to stabilize until there is more truth-telling.

Rather than trickling out write-downs and sour news, Whitney says, banks need to "get real" about their "true asset values."

She thinks they are still embracing an overly cheerful outlook and valuing their mortgage-related assets too high. As a declining housing market takes its toll on their mortgages, she expects "bank stocks to head lower."

It looks as if home prices could fall 33 percent from their peak if the futures market is reflecting the future correctly. The futures, based on the Case-Shiller housing index, already show home prices down 15 percent. But Whitney, who has been ahead of many of her peers in detecting financial troubles, thinks homes will fall even more than 33 percent before they ultimately bottom.

That's because a dangerous spiral is now fully in force - pulling at the strength of banks, housing, and the economy as a whole. Critical in the picture is the fact that almost a $3 trillion part of the housing funding system has all but disappeared. It's called securitization, or the process Wall Street previously used to buy mortgages from banks, bundle the loan payments into bonds, and sell the bonds to investors.

The bonds were popular with investors until the housing bubble burst in 2007. Then, investors discovered that Wall Street had done a shoddy job - bundling together loans that couldn't be repaid. As a result, the bonds have plunged in value, and investors won't buy new ones.

Without that $3 trillion funding system available for mortgages, home buyers and banks are deprived of funds they need. The securitization market provided close to 85 percent of U.S. mortgages over the last decade.

"Since 70 percent of U.S. homes are mortgaged, a shutdown in such a crucial part of the lending market has enormous consequences," Whitney said.

Last spring, Treasury Undersecretary David McCormick and Federal Deposit Insurance Corp. Chairwoman Sheila Bair said in interviews that they thought the housing market would need a healthy securitization market again so housing could recover. They thought that with time, investors would buy the bonds again.

The issue is so serious that the Federal Reserve sought insight into the problem at a Chicago conference on the credit crunch recently.

A panelist, Drexel University finance professor Joseph Mason, said that in the interest of repairing the housing system, it would be essential to restore the securitization system. To do that, however, Wall Street would have to change. Instead of keeping information about mortgages in bonds confidential, Wall Street would have to disclose information continually to investors so they felt confident about buying the bonds. The industry refers to this as "transparency."

At credit-and-debt conference in March in New York, Richard Field, founder of TYI L.L.C., of Needham, Mass., explained a system that would tell investors daily how many mortgage payments were being made on time. Current information is available monthly - too slow with housing declining so quickly.

Meanwhile, banks are left with troubled mortgages and mortgage-related securities on their books.

Each has its own expectations for the housing price declines, and Whitney says they are underestimating the declines.