Manpower Is My Stock Pick of the Year for 2019

What makes a stock qualified as a best pick? It needs to have large, well-defined upside. A decent yield is a big plus. Valuation should be favorable. Risk should be minimal. The workforce solutions and services company, Manpower Group , meets all those criteria and more. It sports a solid balance sheet, pays better than a 3% dividend, sells for less than eight times current year's earnings and offers tremendous capital gain potential. Not only that, Manpower is also a great swing trading vehicle for those with time horizons stretching out towards 12 to 20 months. It has a history of providing huge gains over that range of time while allowing for favorable tax treatment as well. How cheap is MAN right now? As of Dec. 30, 2018, it was quoted at $64.59, down 55% from its January 2018, peak near $137. Yet, there is no bad news. Manpower's per share sales, cash flow, earnings, dividend and book value have never been higher. Value Line assigns MAN a financial strength rating of A while noting it falls into the top 20% of all stocks covered in terms of earnings predictability. Since 2010, Manpower's average P/E has run about 14.2x accompanied by around a 1.76% current yield. Just before year-end 2018, those metrics stood at just 7.8x trailing EPS along with a very generous 3.13% dividend yield. MAN's multiple hasn't been this low since the dark days of 2008. Its yield hasn't registered this high since near the exact nadir in early 2009. The shares look very similarly valued to the previous six best buying opportunities (green-starred below) of the most recent nine years. Conversely, all six of Manpower's should have sold moments (red-starred) occurred only when the shares fetched above average P/Es while sporting worse than typical yields. A simple reversion-to-the-mean valuation, based on next year's somewhat pessimistic earnings projection, supports a 12-month target price north of $113. That very realistic goal is more than 75% above the current quote. Note that traders paid $132 to $136 for MAN in late 2017 and early 2018 when fundamentals were less impressive than they are today. Don't simply trust my view on this. Independent research firm Morningstar used different evaluation criteria yet sees Manpower's value almost identically. Morningstar assigns its highest, 5-star, buy rating to MAN. They call it significantly undervalued while noting its low P/E, cheap absolute price and high yield. Morningstar does not issue 12-month target prices. It does, however, suggest a present-day fair value of $113 as appropriate. That figure is almost exactly what I came up with as a normalized goal price. What makes Manpower so special at today's price? Since 2010, EPS have climbed by almost 380%. Dividends expanded from $0.74 to $2.02, annualized. Cash flow per share has about tripled. Despite all that great progress we can now own MAN for little more than its Dec. 30, 2010, price. Embedded added value of this magnitude almost always precipitates a catch-up move in the shares to arbitrage away the valuation gap. I spoke earlier about Manpower's fabulous trading possibilities. MAN's current sell-off is the fifth major one since the start of 2008. Each previous decline was significant, ranging from down 33.9% (from 2013 to 2014) to minus 68% (during 2008's crash). What's noteworthy is the size of its subsequent rebounds. Each of the bounce backs more than doubled the percentage decline which preceded it. Buying Manpower after horrific plunges has been a fabulous, and predictable way to make huge profits. Generally speaking, the larger the drop, the more significant was the recovery. Manpower's low price and meager valuation has squeezed pretty much all the risk out of owning it. The shares now offer spectacular upside and a better-than-bank-account yield while you wait for the next, virtually assured, rebound.

Manpower Is My Stock Pick of the Year for 2019

Manpower sports a solid balance sheet, pays better than a 3% dividend and sells for less than eight times current year's earnings.

Columnist Conversation

Options Action Adds Bets to Bigger Pullback for Signet

Don't Count on Technicals to Curtail Signet's Crash

Sarepta is Sneaking Up

COLUMNIST TWEETS

Please Join or Log In to manage and receive alerts.