Staffers Poised To Profit On Continued Jobs Growth

By Aaron Levitt | April 19, 2012 AAA

While the March jobs report was disappointing at only 120,000 new positions, we have still come a long way since the depths of The Great Recession. Manufacturers are once again hiring and the unemployment rate is dropping. It continues to be a slow grind upwards, but the labor market in the United States is improving. In that steady improvement, there are ways for investors to profit as well. The various staffing and human resources (HR) firms, which were beaten down heavily during the recession, have once again begun to outperform. With the continue job growth, the sector could be a big buy.

Investopedia Broker Guides: Enhance your trading with the tools from today's top online brokers.

A Rising Outlook
According to the Labor Department, the U.S. economy has added 734,000 jobs between December and February. That's the biggest three-month increase since May 2010. At the same time, weekly applications for unemployment-insurance payments fell to the lowest amount in four years and the Bureau of Labor Statistics employment-diffusion index has been above 50 for nearly two years. That indicates that more industries are hiring than firing. Overall, these positives have pushed the unemployment rate down to just 8.2%. Still well above prerecession numbers, but way better that the recessionary peaks.

However, things are continuing to get better. Low natural gas prices are helping drive a manufacturing renaissance across the country. Low input costs have encouraged companies producing petrochemicals, steel, fertilizers and other products to return to the U.S. after relocating overseas. For example, steel firm Nucor (NYSE:NUE), recently broke ground on a new $750 million direct-reduced iron facility in Louisiana as it is now cheaper to run than a similar facility in Trinidad. A recent study by consultancy PricewaterhouseCoopers estimates that the natural gas boom will result in more than 1 million new manufacturing jobs by 2025.

In the short run, bullish signs continue to present themselves. Staffing firm Adecco (OTCBB:AHEXY) recently reported that clients were beginning to convert temporary workers into permanent hires as companies that had postponed projects were beginning to revive them for later in the year. Analysts now predict that the jobs market may finally be entering a self-sustaining cycle: job gains drive income growth, which drives further consumer spending and then more job gains.

All of this is big news for the various staffing and HR firms. The Bloomberg U.S. Employment Services Index, which tracks a basket of 17 firms, has risen by more than 48% since Sept. 22, 2011. Any additional jobs growth should continue to push up the firms.

SEE: What You Need To Know About The Employment Report

Betting on the Sector
Given the improving jobs market, investors may want to look at the various staffing and HR firms. Unfortunately, unlike many sectors of the market, the staffers aren't available as a neat little exchange-traded fund (ETF) package. Investors wanting to add the space will need to do so individually. Here are a few picks.

Robert Half International (NYSE:RHI) is currently trading at a multiple of 1.06 times enterprise value to sales for the last 12 months. This is roughly equal to its 2001 recessionary lows, and analysts estimate that's a huge discount to its value. At the same time, the firm has seen improving revenue growth, increasing 14% compared to last year's fourth quarter revenue numbers. Analysts predict over $4 billion in total revenue for the fiscal year 2012. Additionally, Robert Half is benefiting from rapid economic growth in foreign markets like Abu Dhabi, as they fill many contractor jobs outside of the U.S. Add this to the firm's 2.1% dividend and you have a top pick in the sector. Similarly, rival Manpower (NYSE:MAN) has been increasing its overseas contractor division as well.

Kelly Services (Nasdaq:KELYA, KELYB) remains another top analyst pick as the firm has been exiting lower margin businesses and venturing into higher margin ones over the last few coming quarters. Kelly trades at a dirt cheap P/E ratio of around 8 and yields about 1.4%.

Finally, while Monster Worldwide (NYSE:MWW) may have been the first real Internet portal for job hunting, social media site LinkedIn (NYSE:LNKD) continues to redefine how American's find jobs. The company reported 30% higher quarterly earnings and is benefiting from the symbiotic relationship with the staffers. Temp recruiters are flocking to the site in order to find potential candidates for jobs.

The Bottom Line
The continued employment picture in the U.S. will certainly benefit staffing firms. As the outlook is only getting brighter, investors may want to give the sector a go. The previous firms along with Insperity (NYSE:NSP), make ideal choices to play the sectors rebound.

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

At the time of writing, Aaron Levitt did not own shares in any of the companies mentioned in this article.

comments powered by Disqus
Related Analysis
  1. India Remains An Emerging Market Bright Spot
    Stock Analysis

    India Remains An Emerging Market Bright Spot

  2. Still More Gains Ahead For Semiconductor Makers
    Stock Analysis

    Still More Gains Ahead For Semiconductor Makers

  3. 3 Social Media Stocks See Big Swings In Short Interest
    Stock Analysis

    3 Social Media Stocks See Big Swings In Short Interest

  4. Unconventional Drilling Still Has Room To Boom
    Stock Analysis

    Unconventional Drilling Still Has Room To Boom

  5. Finding An Alternative With Currency ETFs
    Stock Analysis

    Finding An Alternative With Currency ETFs

Trading Center