Benefiting From a Recovering Jobs Market

 | Jun 21, 2013 | 7:00 AM EDT  | Comments
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Stock quotes in this article:

rhi

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kelya

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tbi

Jobs are hardly plentiful nowadays, but nor are they as scarce as they were three or four years ago. As a country, we have been making progress on the employment front, albeit a lot slower than we would want and slower than many expected.

The most recent unemployment figures showed an increase in nonfarm payrolls of 175,000 and an unemployment rate of 7.6%. This in the ballpark with what we have seen during the past several months, with the unemployment rate being below 8.0% since September of last year.

Beneficiaries of the (slowly) recovering jobs market are employment agencies. When companies hire, these companies are in line to benefit. I think an indicator of the improving jobs outlook is the presence of three employment agencies that get very high approval ratings from my guru strategies. These are computerized strategies I modeled after the investment strategies of some of Wall Street's brightest gurus.

Having three employment agencies earn such strong accolades is a testimony to how well this sector is doing. All three of these companies are important players in their market and have track records of strong performance. They all enjoy the competitive advantage of size and the market advantage of being in a nicely recovering market niche.

Robert Half International (RHI) is one of the country's largest providers of staffing services. The strategy I based on Peter Lynch's approach to investing is a fan of Robert Half. This strategy looks at the P/E/G ratio, which is the price-to-earnings ratio (P/E) relative to growth, and is a measure of how much the investor is paying for growth. Up to 1.0 is acceptable, and Robert Half is comfortably below this bar at 0.83. Another plus is the almost total absence of debt on the company's balance sheet.

Another major player in the employment-agency industry liked by the Lynch strategy is Kelly Services (KELYA). Its yield-adjusted P/E/G is 0.80 and, like Robert Half, has little in the way of debt.

The smallest and least known of the three is TrueBlue (TBI). Whereas Robert Half and Kelly Services address a wide range of job openings, from temp to permanent, and from lower level to higher level jobs, TrueBlue specializes in temporary blue-collar staffing in such industries as construction, manufacturing and services. My James P. O'Shaughnessy-based strategy likes the company's large market cap ($933 million), five straight years of improving earnings per share (EPS), and a sales ratio of 0.66, which is way below the 1.5 maximum allowed. Companies that pass these three criteria are then judged by their relative strength and only the top 50 are chosen. TrueBlue's relative strength of 83 places it in this top-50 group.

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