Out of the 216 industries and sectors there is only one sector, which is growing.  It’s the Online Financial Sector and the three industries, which reside in it including Online Brokerage, Online Financial Information and Online Investor Education.  It’s the only sector that directly benefits from global financial crisis.  Why?

To say that over 100 million investors in the U.S. are frustrated and depressed would be an under statement.  Each day more and more of them are giving up on those who have been giving them investment advice and they are becoming “do it yourself investors”.

The trend to “do it yourself investing” is accelerating.  Check out these articles, “Burned investors take do-it-yourself route”, “Stock Website Visits Increase 19% in February”, “Market Misery Sends Investors Online” and  “Blue Chips” that have recently been written on the online financial sector. 

Ameritrade’s shares increased by 10% earlier this week after its CEO, Fred Tomczyk said the following when the company released its quarterly earnings report:

“Our [Ameritrade] last six months speak for themselves – record trading volume, the best new account growth in nine years, and net new assets growing at an annualized rate of 10 percent of beginning client assets.

Given the positive developments in the online brokerage industry its not surprising that the shares of all five of the online brokers I have been recommending increased significantly from their March 2009 lows:

Now that the shares of the online brokers have gone up significantly over the last month, in the table below I am now recommending the shares of the following companies that reside in the online financial sector:

Of the six online information companies and online education companies the shares of Global Investor Services (OTCBB:GISV, which has the lowest price of all of my recommendations have languished at under $.10 per share.  This is even though its management and a majority of its creditors recently announced that they were converting debt into common shares at a conversion rate of $.25 per share.  The conversion was done so that the company could make itself more attractive to new investors.  

GISV shares have attracted little attention because I do not believe that investors are aware of the significant positive changes that have been underway for the company.   GISV’s primary business has been and continues to be in educating individuals on how to invest in or trade stocks, options and currencies.  Prior to the global financial collapse GISV used a seminar or event marketing approach to generate and educate new students.  They would spend money on marketing and advertising in a particular city to acquire leads.  After they received a sufficient number of responses they would then go to the city and hold an initial FREE introductory meeting.  The meeting or the event was used to up sell a percentage or a “minority” of the attendees into courses that that had prepaid fees ranging from $3,000 to $20,000.  At prices as high as $20,000 they only had to close a small percentage of those who attended the events.     

With the collapse in consumer spending in 2008, GISV’s marketing and selling model also collapsed as consumers are now resistant to big ticket items that require the use of a credit card.  Most companies would be unlikely to be able to survive such an ordeal.  However, the issue for GISV was not that it had an ineffective or obsolete product.  It and a handful of its competitors are the only ones who have state of the art investor education systems.  What GISV did was to re-price its investor education product offerings so that they would be easily affordable to its prospective students.  The key solution that GISV came up with was to totally move the marketing of their products and their fulfillment online.  In doing so they were able to “easily” do the following:

• Reconfigure their pricing so that they can easily attract students on line.  Under the new pricing model a student will pay between $100 and $300 per month for a multiple number of months instead of having to pay an up front fee of between $3,000 and $20,000. 

• EXPONENTIALLY increase their Gross Profit Margins.  For its quarter ended December 31, 2009, GISV’s revenue was $511,380 and its cost of goods was $453,387.  This left it with a gross margin of 8.9%.  Under their new pricing formula I am projecting that their gross margins on their three levels of subscription services will range between 80% and 90%.  Now the company will generate between $400,000 and $450,000 on $500,000 in revenue.       

• Slash their overhead.  It was easy for GISV to slash their overhead because most of it consisted of expenses for administrative and human resources that were required to support their event marketing activities.    

• Utilize their new “monthly” price system to gain a competitive advantage against their bigger competitors who are still reliant on event marketing to drive big ticket sales.   GISV with its new profit marThe investor education industry’s event marketing and partnership sharing arrangements generate a gross margin of only 20% for their competitors who  for the online  the arrangements  magenerae 

• Significantly expand the number of potential students because they can now offer low monthly fees instead of a large one time fee.  They also can now go back to all those highly qualified leads that actually responded to their original offers and were among the “majority” who were unwilling to spend their monies on a big ticket item.

Its an understatement when I now say that GISV now has a much stronger business than the one that it had before it was broad sided by the financial tsunami.  It has transformed itself from a direct marketing and fulfillment company to a publishing company.  As a publishing company it now enjoys significant economies of scale.  For example, its fixed cost or overhead to attract 1000 prospective students are the same as its costs to attract one student.  I really love publishing company opportunities because the recipe to make a fortune is to have a high gross margin product offering, which is priced to sell to a mass market.  Now GISV has a business and product offerings, which does just that.  

GISV now has a high probability of success.  It has cut its overhead to the bone.  All of the compensation paid to its officers and Directors will be paid in shares at a rate of $.25 per share until the company achieves a cash flow positive status.  Their overhead has been reduced to the point that with only a few hundred more students at their new monthly price points they will become cash flow breakeven.  Its high gross margin and residual revenue model can be used to enter into partnering relationships or revenue sharing with many other qualified data bases of potential students.  The company also has 2,000 of its own customers and thousands of its own qualified leads, which it can sell its product offerings. 

Given the trauma that GISV recently has been through I believe that it is a “Poster Child” or a “case study” for what a company must do to reinvent itself after its business is totally wiped out by an economic tsunami.  The company did two things that tell me its management team is a winner.  First of all, it completely scrapped a model that it had relied on for years.  Secondly, by changing its prices on existing products it was able to not only lower its prices significantly, but it was also able to increase its gross margins by 1000%.  Lastly, it was able slash its overhead to the bone and significantly lower its break even point.  Generally, a company which undergoes such a radical change is prone to go out of business due to time required to develop new products, etc.

Investors should not discount the company’s dramatic jump in gross margins to above 80%.  There are less than a couple hundred public companies, which enjoy gross margins of 80% or better.  The shares of any company, which can even project such gross margins, especially one with a recurring revenue stream should strongly be considered for ownership by serious investors. 

I recommend that investors kick the tires on GISV before they purchase or invest in its shares.  That can easily be done by registering as a guest in the company’s Investview Trading Room, which can be entered into each Saturday morning between 10:30 am and 11:30 am EDT.  To register go to http://www.investview.com/mm.

Disclosure:  I currently hold shares in Global Investor Services, Inc., Morningstar, BankRate, Interactive Data, Think or Swim, TheSreet.com and Options Express holdings.  For more information on the online financial sector go to www.onlinefinancialsector.com