Stock Analysis & Ideas

Universal Technical Institute Stock: A Blue-Collar Sector Opportunity

Story Highlights

Although modern society is geared toward digitalization and white-collar jobs, blue-collar labor is where the “easy” money is, thus driving the hidden investment case for training center Universal Technical Institute and UTI stock.

While a component of the American Dream involves attaining a four-year university degree to move up the social mobility ladder, the neglected blue-collar sector presents massive opportunities for those who don’t mind getting their hands dirty.

As a result, training center Universal Technical Institute (UTI) – which specializes in the transportation industry – is a diamond in the rough. I am bullish on UTI stock.

Several days ago, hedge fund manager Michael Burry – perhaps best known for being portrayed in the film “The Big Short,” which chronicled his contrarian wager against the housing market – stirred the pot on social media.

In a tweet, Burry stated: “I see a bifurcated labor market developing as unskilled and semi-skilled remain in short supply, but white collar workers, having proven their redundancy during COVID, will find gross excess in the labor market, pressuring wages at the end.”

Notably, the famous (some might say infamous) investor tied the dots with Tesla (TSLA) laying off about 200 workers from one of its California-based offices. Essentially, too many white-collar workers exist while, at the same time, people who actually know how to perform practical functions – blue-collar workers – are in short supply.

He may be onto something. As data from Pew Research Center and other sources confirm, Generation Z and Millennials are largely online “almost constantly.” These are not people who desire plumbing jobs or landscaping work. Instead, they seek plush jobs in the office (or increasingly now in the living room) doing “computer stuff.”

However, to harken the memory of baseball great Ichiro Suzuki, who embodies the “hit ’em where they ain’t” philosophy, going blue-collar presents ample opportunities, and this is where Universal Technical Institute comes into play.

Universal Technical Institute May Outperform

On TipRanks, UTI scores an 8 out of 10 Smart Score rating. This indicates strong potential for the stock to outperform the broader market.

Simple Math Calculations Highlight the Need for Auto Mechanics

One of the best methodologies available for assessing the viability of a particular investment is the underlying supply-demand profile. For instance, fewer units of desirable and utilitarian commodities typically yield greater demand for them. In a sense, UTI stock is a gold-mining company; it’s just that in this case, the gold is auto mechanics.

As a specialist in the transportation industry, Universal Technical Institute trains people seeking careers as technicians in the underlying sector, from cars to diesel trucks to boats. Basically, if it moves, UTI provides quality training and education on it.

For the automotive sector specifically, the demand profile couldn’t be clearer. It comes down to simple math.

Back in 2011, data from the U.S. Bureau of Labor Statistics showed that there were 653,000 full-time automotive service technicians. Based on the number of registered vehicles at the time, the statistic works out to nearly 388 cars per mechanic.

Fast forward to 2021, the number of mechanics dipped slightly to 651,000. However, the number of registered cars jumped to nearly 284 million, or 436 cars per mechanic. In other words, each mechanic now has 12.4% more customers.

Again, it’s just simple math. The market is practically screaming for more auto mechanics, and as older mechanics retire, the supply-demand imbalance will likely become severe. Frankly, that’s a net positive for UTI stock.

Economics Play a Role Too

While almost every working household is likely complaining about the soaring inflation rate, it cannot be avoided that certain occupations benefit from the rising prices of everything. The auto mechanics industry is one of them.

Although it’s true that millions of people rushed to purchase used cars during the post-pandemic madness, the wild market also priced out many others. However, since most Americans drive their personal vehicles to work, the necessity of car ownership is almost a sacrosanct concept.

Now, the rising cost of oil complicates matters, as that has a direct implication for gasoline prices. Theoretically, this dynamic bolsters the case for electric vehicles. With fewer moving parts, independent auto mechanics generally don’t deal with EVs.

However, inflation has also substantially impacted this sector. The latest data shows that the average transaction price for a new EV soared to slightly over $60,000. Logically, this backdrop implies that more people – just out of sheer financial coercion – will still purchase combustion-powered cars.

Though a cynical argument, it supports the bullish case for UTI stock, nevertheless.

Wall Street’s Take on UTI Stock

Turning to Wall Street, UTI is a Strong Buy based on four Buy ratings. The average Universal Technical Institute price target is $12.75, implying 71.83% upside potential.

Conclusion – A Hidden Opportunity

To be fair, social changes stemming from digitalization translates to fewer people desiring careers involving manual labor. That’s as true for auto mechanics as it is for the agricultural industry.

However, at some point, the harsh reality is that, per Michael Burry’s point, the dramatic influx of white-collar office workers makes many of them redundant. Therefore, unless one is the best (or near the best) at a chosen white-collar field, opportunities will be limited.

In contrast, the transportation sector features the opposite scenario. The industry is practically begging for more workers. In the long term, that’s a massive positive for UTI stock.

Disclosure

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