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Don’t Miss the Staffing Market Rally, Buy These 4 Stocks

Zacks

The U.S. labor market has maintained a record-low unemployment level and strong job additions since the beginning of the year. The unemployment rate is at a 17-year low with Americans filing for unemployment benefits still below the 300,000 threshold for the 162th consecutive week that ended on Apr 7.

U.S. employers have accelerated hiring driven by a business-friendly tax reform. Modest wage growth also reduced fears of inflation and rate hikes that had bothered employers for quite some time. With job additions staying strong, staffing companies stand to gain the most.

Unemployment Flat, Wage Growth Modest

In March, the unemployment rate remained flat at 4.1%, marking a 17-year low for the sixth consecutive month, despite an increase in wage gains.


Meanwhile, U6, the most rigorous metric of unemployment in the U.S. economy, declined to 8%, its lowest level in 11 years. This measure takes into account individuals who are not searching for employment or those who are working part-time since they cannot secure full-time employment.

Although a tighter labor market is producing better wage growth, it remains below long-run averages. Average hourly earnings in March increased by 8 cents to $26.82, registering only a 2.7% year-over-year increase, marginally higher than the 2.6% pace witnessed in February.

Recruitment Trend Strong

The United States added 103,000 jobs in March. Although significantly lower than February’s addition of 313,000, the average pace of job additions was 202,000 per month during the first quarter, significantly faster than the average gains registered over the last two years. Payrolls were added for 90 straight months, the longest streak since the Labor Department started tracking this data in 1940s.

While the economy continues to create new jobs despite the 17-year low jobless rate, a tight labor market is compelling companies to pay higher to attract and retain employees.

At the forefront of jobs gains last month, were healthcare and construction. Each of these sectors added 22,000 jobs. Job additions in mining amounted to 9,000. However, leading the pack was the professional and business services sector, which added 63,000 jobs. Over the year, the sector has added 502,000 jobs.

The labor force participation rate and the employment-to-population ratio surged to 63% and 60.4%, respectively. Both figures were at their peak since September 2017.

Growth Expected Through 2018

Despite the slowdown in March hiring, the labor market remains strong, as it has been during most of the economic expansion that started in mid-2009. In fact, the slowdown in the pace of hiring gives credence to the view that the economy is near full employment. Broadly, the Trump administration’s business friendly approach, a strong U.S. economy, reduced tax rates, robust manufacturing and non-manufacturing activity, and improvements in the labor market and higher government spending should support additional hiring and wages gain this year.

Per a new industry forecast by Staffing Industry Analysts, the total U.S. staffing market (includes temporary staffing and place and search) is anticipated to go up by 3% in 2018 to a total revenue of $145.1 billion.

Total U.S. staffing market — which includes temporary staffing as well as place and search — will rise by 3% both this year and in 2018, bringing total revenue in the industry to $145.1 billion next year, according to a new industry forecast by Staffing Industry Analysts. U.S. temporary staffing industry revenues are also expected to grow 3% in 2018 to reach a total of $125.6 billion.

The forecast indicates decent growth considering the fact that the expansion cycle has reached its maturity stage.

Our Choices

Solid macroeconomic fundamentals, government’s tax reform along with sustained strong earnings performance are the major tailwinds for the U.S. labor market. Such factors are unlikely to disappear in the near term.

The buoyancy in the staffing space is further confirmed by its solid Zacks Industry Rank in the top 31% (79 out of 256), indicating continued hiring and more job opportunities.

Earnings prospects are also bright with the Business Services Sector, including staffing firms, expected to be up 10.6% from the year-earlier level on 4.8% higher revenues as of Apr 6, 2018. (Read: Bank Earnings in the Spotlight).

The sector has been a strong performer, gaining 22.9% in a year, outperforming the S&P 500 index’s 13.7% gain.

So, adding staffing stocks to your portfolio makes great sense at this point. However, picking winning stocks can be a difficult task.

We have narrowed down our search to the following stocks, each of which has a Zacks Rank #1 (Strong Buy) or 2 (Buy) and have solid expected earnings growth rate for the year. You can see the complete list of today’s Zacks #1 Rank stocks here.

Korn/Ferry International KFY is the world's leading and largest executive recruitment firm with the broadest global presence in the executive recruitment industry. It carries a Zacks Rank #1.

The company expects earnings growth of 17.4% for current year. The Zacks Consensus Estimate for the current year has improved by 5.6% over the last 60 days.

Korn/Ferry International Revenue (TTM)

GEE Group JOB is a provider of professional staffing services and solutions. It carries a Zacks Rank #1.

The company expects earnings growth of 27% for current year. The Zacks Consensus Estimate for the current year has improved by 85.2% over the last 60 days.

GEE Group Inc. Revenue (TTM)

Insperity Inc. NSP is engaged in providing an array of human resources and business solutions. It carries a Zacks Rank #2.

The company expects earnings growth of 24.1% for current year. The Zacks Consensus Estimate for the current year has improved by 14.7% over the last 60 days.

Insperity, Inc. Revenue (TTM)

Randstad NV RANJY provides solutions in the field of flexible work and human resources services. It carries a Zacks Rank #2.

The company’s estimated earnings growth rate for this year is 24.6%. The Zacks Consensus Estimate for the current year has improved by 10.7% over the last 60 days.

Randstad Holding NV Revenue (TTM)

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