How bad is it? Pawn shops, payday lenders are hot

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The Payday Loans store in Springfield, Ill., is open for business Wednesday, June 21, 2006. Just months after Illinois cracked down on the short-term loan business, Illinois Gov. Rod Blagojevich is making another push for restrictions to protect consumers. Blagojevich, who calls the industry a legal form of loansharking,'' is trying to take action by using his executive powers instead of working through the Illinois General Assembly. (AP Photo/Seth Perlman)

Updated: July 11, 2011 2:08AM

NEW YORK — As the jobless rate inches up and the economic recovery sputters, investors looking for a few good stocks may want to follow the money — or rather the TV, the beloved Fender guitar, the baubles from grandma, the wedding ring.

Profits at pawn shop operator Ezcorp Inc. have jumped by an average 46 percent annually for five years. The stock has doubled from a year ago, to about $38. And the Wall Street pros think it will go higher.

In investing, it’s often better to focus on what you can safely predict, even if that safety is found in companies that thrive on hard times. One good bet: The jobless aren’t likely to find work anytime soon. And companies profiting from their bad fortune will continue to do so.

Among them:

† Stock in payday lender Advance America Cash Advance Centers (AEA) has doubled from a year ago, to just under $8. Rival Cash America International Inc. (CSH) is up 64 percent, to $58.

† Profits at Encore Capital Group, a debt collector that targets people with unpaid credit cards bills and other debts, rose nearly 50 percent last year. Encore has faced class action suits in several states, including California, over its collection practices. The Minnesota attorney general filed a suit in March. No matter. The stock (ECPG) is up 59 percent from a year ago, to more than $30.

† Stock in Rent-A-Center (RCII), which leases televisions, couches, computers and more, is up 57 percent from a year ago to nearly $32.

Desperation stocks continue to be lifted by a drumbeat of bad news. Consumer spending, adjusted for inflation, has fallen for two months in a row — the first back-to-back fall since November 2009. On Friday, the government reported the unemployment rate rose to 9.2 percent in June, sending stocks in tailspin. On top of that, one in seven Americans now live below the poverty line, a 17-year high.

“It’s been a good year,” says John Coffey Jr., a Sterne Agee analyst, referring to the companies he follows, not the economy.

Coffey created a stir late last month when he issued a report arguing shares of Ezcorp (EZPW), which also makes payday loans, were worth a third more than their price and urged investors to buy.

The stock rose 7 percent in just a few hours. ap