The current U.S. unemployment rate of 7.8% is high historically (it was between roughly 4% and 6% for several years prior to the Great Recession), but is down significantly from its recent high of 10% in October 2009. Some observers predict a more rosy future, saying the unemployment rate could fall to 7% by the end of the year. If so, investors who want to benefit from an uptick in jobs should consider buying into companies that help employers find employees and help prospective employees find jobs.
Two such companies earn guru strategy approval. Over a decade ago, I created a number of computerized strategies based on the writings of noted Wall Street investment gurus, and I use these strategies to ferret out stocks worth buying.
Monster Worldwide (MWW) provides online employment solutions, including job listings, career management, recruitment and talent management products and services. The company, a pioneer in digital recruiting, operates in 50 countries. The strategy I base on the writings of Joseph Piotroski gives Monster very high marks. This strategy requires a company to be in the top 20% of the market based on the book-to-market ratio (which is the inverse of the more common price-to-book ratio), suggesting the stock may be well priced. The strategy then checks to see if the stock is a bargain or is low priced because the company is in distress. Monster's return on assets, cash flow from operations, lack of long-term debt, increasing gross margin and other variables suggest the company is doing well financially and its stock is priced at a level worth buying now.
The other employment-oriented company worth considering is Dice Holdings (DHX). Like Monster, Dice provides online job listings. It is known for narrowly focused, job-board Websites in specialized industries that target technology, finance, energy and health care, among others. The guru strategy I created from the writings of Peter Lynch recommends this stock. This strategy focuses on the price-to-earnings-to-growth ratio (price-to-earnings relative to growth), a measure of how much the investor is paying for growth. A PEG of 1.0 or less is acceptable and 0.5 or less is considered very favorable. Dice's PEG is in very favorable territory at 0.47, based on the average of its three- and four-year historical earnings per share growth rates. In addition, the company has a moderate amount of debt.
Of course, a downturn in the economy will hurt the job market and, in turn, likely batter these two companies. But if the economy continues its upward momentum and employment continues to improve, as expected, these companies are in a good position to benefit.