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?
getrichwithme says
Is the reduction in full time permanent contracts a good thing ?
Do they generate any loyalty between employers and employees ?
It makes life very unstable for workers, knowing that they can lose their jobs with little or no notice
I realise that there has to be a certain level of flexibility for companies to plan their labour issues but at the end of the day – people need stability.
As for Obamacare – public health systems work very well in Europe – surely in “the worlds richest nation” it could work too ?
krantcents says
In the current economy, staffing companies are going to grow leaps and bounds. Many employers are skiddish about hiring and temporary workers is a way of life. It works for companies and unemployed people as well.
Today's Tom Sawyer says
To answer the first post, I was a contract engineer from 2000 to 2013. It was unstable, however I had only a total of six weeks of downtime in all those years. The longest was three weeks. Three times I would end one contract on a Friday in one city and start a new one the next Monday in another city. And once it was 2100 miles between the two cities. You get a great tax break for twelve months. I only recently became a direct hire because I am tired of traveling g far from home, and in my 50s. I might go contracting again in three years but only within 500 miles of home. My new job has excellent opportunities to ramp up my skills in areas that are in high demand in my part of the U.S. also yes, I have bought thousands of shares of staffing company stock through ESPP at my former staffing company. Kept most. I am anticipating another great five years in staffing company stocks.