Job gains lure investors to employment-services stocks
Employment-services companies are attracting investors who are betting the U.S. labor market will keep up its steady pace of job creation.
The Standard & Poor's Supercomposite Human Resources & Employment Services Index which includes Robert Half International Inc. and Manpower Inc. has risen 19 percent since Oct. 15, compared with a 1.5 percent increase for the S&P 500 Index. The outperformance coincides with nonfarm payroll data for October and November that exceeded economists' forecasts.
The better-than-projected reports are generating interest in companies that provide services such as recruitment, back-office administration and human-resources management, said Jeff Silber, a senior analyst in New York at BMO Capital Markets. Even though their businesses are tied more to the need for temporary workers, their near-term stock performance is driven by total hiring, he said.
Job growth that's "not too hot and not too cold is actually great for these stocks," because demand for temporary positions remains strong enough to drive earnings, Silber said. "We're in a Goldilocks-type environment."
Gains of about 100,000 to 150,000 a month will be "pretty good" for companies such as On Assignment Inc. and TrueBlue Inc., Silber said. Nonfarm payrolls expanded by 150,000 in December, based on the median estimate of economists surveyed by Bloomberg. That would mark six straight months at more than 100,000, according to data from the Labor Department.