While the United States economy is still struggling to recover from the Great Recession, the staffing industry continues to perform well. As employers do not want to take on the costs of full-time workers, there has been increased demand for companies in the temporary workforce sector.
For investors, the companies range from prominent blue chips such as Paychex (NASDAQ: PAYX) to promising small-caps such as Labor SMART (OTCBB: LTNC). There is something for every investor in the staffing sector, now a $100 billion industry in the United States.
Income Investors Love Staffing Companies
For income investors, Paychex, CDI Corp. (NYSE: CDI), Compass Diversified Holdings (NASDAQ: CODI), and Heidrick & Struggles International (NASDAQ:HSII) all pay dividends higher than the 2 percent average for a member of the Standard & Poor’s 500 Index.
With its history of dividend growth and its high profit margin, Paychex is an excellent income stock. In July, Paychex raised its dividend more than 6 percent. While Compass Diversified Holdings has a dividend of more than 8 percent, the company is losing money so the dividend is likely to be cut.
There’s Growth in the Sector as Well
Growth investors also have a broad array of choices.
For those who like small-cap stocks that are surging in earnings, Labor SMART just booked record revenues for the month of August. The revenues for Labor SMART last month were 175% higher than for August of 2012. For that same period, Labor SMART added over 100 clients.
TrueBlue (NYSE: TBI), another company in the $29 billion demand labor sector like Labor SMART, has both sales growth and earnings-per-share growth in the double digits on a quarterly basis, which are very bullish indicators, especially for such a thriving sector.
Staffing Can Be a Value Play
Value investors, too, have much to select from in the staffing industry.
Companies selling at a substantial discount to sales include Compass Diversified Holdings, Labor SMART, and Kelly Services (NASDAQ: KELYA). Kelly Services is also selling at a discount to book value as is Cross Country Healthcare (NASDAQ: CCRN).
Firms that have revenues higher than their market capitalization rates are especially appealing to value investors. When that happens, it signals to investors that the market has not fully valued the revenue growth and potential of the company. At present, Labor SMART is the most appealing stock in the sector based on that proven measure.
Many firms in the group have established lucrative niche practices. Robert Half International does very well in the accounting and legal practices. For Cross Country Healthcare, it is in services in the medical field that include nurses and physicians. The “Kelly Girl” will always be associated with Kelly Services.
Potential for the Future
No matter what happens with the American economy, the staffing sector will continue to perform well.
The percentage of the U.S. workforce that is part-time has increased over the Great Recession, and continuing into its aftermath. Even with signs of recovery, businesses still do not have the desire to commit to the higher expenses of full-time employees. There is still too much concern about the stability of the U.S. economy with unemployment still so high, along with the federal budget deficit.
As detailed in a previous article on this site, Obamacare will increase the costs of full-time workers for a business: companies with more than 50 workers will have to provide health insurance, starting January 1, 2014. That will only increase the number of firms turning to staffing agencies.
The American economy has changed as a result of the Great Recession and the onslaught of Obamacare. As a result, there should be more of a demand for the products and services of staffing companies. For growth, income, and value investors, there are firms in the sector that should provide long-term profits.
What are your thoughts on the staffing sector?
Jonathan Yates is a financial writer with degrees from Harvard, Johns Hopkins and Georgetown University Law Center. While much of his career was spent working for Members of Congress on Capitol Hill, he was also General Counsel for a publicly traded corporation; and worked in the research department of a brokerage house.