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Jubak: 5 stocks juiced by job growth
Finally, the economy is adding jobs at a decent pace, which will aid companies that help other companies hire workers.
By Jim Jubak
The economy added 308,000 jobs in March, according to the most recent report from the Bureau of Labor Statistics. For the week of April 17, initial claims for unemployment fell by 9,000 to 353,000, bringing the less-volatile, four-week moving average down to 347,000. Thats consistent with an economy adding jobs at an average of 170,000 a month. So finally the recovery is starting to generate significant numbers of new jobs, which is good news for anyone looking for work.
The most recent numbers also show that the long-awaited revival in manufacturing is under way. The regional surveys of purchasing managers in Philadelphia, New York and Chicago show that companies are planning to buy more materials and machines and hire new workers. Again, thats good news for anyone looking for work in this beleaguered sector.
This good news on jobs may actually be good enough to start the kind of positive feedback loop thats essential if an economic recovery is to become self sustaining. The most recent numbers from the Conference Board show that in April consumers gained confidence in the economy's strength over the next six months, largely on their belief that the job market is picking up. So consumer confidence leads to spending, which leads to new hiring and that leads to higher consumer confidence and so on. More good news for workers.
All this good news adds up to great news for the stocks of companies that recruit workers to fill vacancies, do paperwork for those new hires and keep track of things like benefits and taxes.
Finding potential
I flagged three stocks to watch in this sector in my 11:20 a.m. ET appearance Wednesday on CNBCs "Morning Call." And Ill give you two more names in this column.
Robert Half International (RHI, news, msgs) provides high-end full-time and temporary workers to middle-market customers. It recruits skilled professions in areas like accounting and law to smaller firms that tend to be a bit less price sensitive
Robert Half has been able to achieve an average gross margin of 42.5% over the last five years, about twice the industry average. It also has an average five-year return on invested capital of 12.5%, almost four times the industry average. In 2002, Robert Half bought the Protiviti internal audit business of scandal-plagued accounting giant Arthur Andersen. Start-up costs have cut into recent profits, but long-term this business should be a solid addition for Half.
Wall Street is expecting a return to profitability in a big way in 2004 with earnings per share projected to rise to 40 cents a share from 4 cents in 2003. With the economy solidly in recovery, Wall Streets estimate of 76 cents a share for 2005 may actually turn out to be low. The stock recently traded at 39 times projected 2005 earnings per share. Our StockScouter rates Robert Half a 10 out of a possible 10.
An offsite HR department
Administaff (ASF, news, msgs) workers provide services that include benefit management, employment administration, liability management, worker recruiting and training, and performance management. It basically makes up a complete offsite human resources department for 4,500 small and midsize businesses.
Administaff has done a good job of keeping revenues steady by increasing margins while a rocky economy reduced the number of employees it served at client companies. But its the upside leverage in the companys model thats attractive to investors now. As client companies add workers, Administraff reaps greater revenues from its existing client base. Those revenues grow faster than costs, so margins rise. And with the economy in recovery Administaffs sales effort can grow that client base as well.
After zooming ahead in 2003, the stock pulled back from its January highs on fears that the recovery was indeed producing few jobs and now looks ready to move up again on recent numbers. Our StockScouter rates Administaff a 9.
Labor Ready (LRW, news, msgs) operates at the other end of the labor market from Robert Half. The company provides temporary workers for manual jobs in transportation, warehousing, light manufacturing and construction sectors, among others. These are the sectors that will see the biggest jump in hiring, first temporary and then permanent workers, as manufacturing picks up.
The slow economy walloped earnings in 2003, even producing a first quarter 2003 loss of 8 cents a share. In this year's first quarter, the company reported a 2 cents a share profit, indicating that the trend has indeed changed. Wall Street projects earnings per share of 54 cents a share in 204 and 72 cents in 2005. The stock recently traded at 25 times projected 2004 earnings per share and 19 times 2005 projections. Out StockScouter rates Labor Ready a 7.
Two exclusive picks
Gevity HR (GVHR, news, msgs), like Administaff, offers small and midsize businesses all the services of an in-house human resources department. With Gevity the big question is how many clients it acquired when it bought EPIX and TeamStaff will it keep? Gevity served 51% more client workers in 2003, but all but 2% of that growth came from acquisitions. If Gevity can manage this challenge, the stock is relatively cheap. It recently traded at 27 times projected 2004 earnings and 20 times projected 2005 earnings. Our StockScouter rates Gevity HR a 6.
Manpower (MAN, news, msgs), one of the most recognized names in the temporary worker market, used the recent economic downturn to improve its gross margins by acquiring businesses with higher margins and investing in internal businesses with that potential. This should pay off in a big improvement in the companys historically low gross margins as the economy recovers. That improvement may already be showing up.
The companys average gross margin over the last five years was just 18.6%, below the industry's 21.5%. But in the trailing 12 months, Manpowers margin has improved to 22.3%, slightly ahead of the industrys 22.2%. The stock recently traded at 22 times projected 2004 earnings per share and 17 times 2005 projections. Our StockScouter rates Manpower an 8.
Editor's Note: A new Jubaks Journal is posted every Tuesday and Friday.
E-mail Jim Jubak at jjmail@microsoft.com.
At the time of publication, Jim Jubak did not own or control shares in any of the equities mentioned in this column. He does not own short positions in any stock mentioned in this column.
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