10-year

Don't Miss This Only Promotion (20% off)

Join GuruFocus Premium Membership Now for Only $279/Year

Save up to $500 on Global Membership.

Don't Miss It !

Free 7-day Trial
All Articles and Columns »

My Shocking Prediction for 2011 -- and 2 Ways to Profit: MWW, RHI

November 10, 2010 | About:
I don't want to bury the lead, so let me start with my prediction: theeconomy will add over 2 million jobs in the next 12 months.

But before we get to that, let's add some context.

To say that the job market is weak would be like saying the Sawhorror movie franchise is a little gory. In fact, I'm not sure which has seen more bloodletting. Last month, The Los Angeles Timesreported that 2.3 million California workers have been axed -- and that's just in the Golden State.

Nationwide, the unemployment rate has remained at elevated levels above 9.5% for 15 consecutive months, the longest such drought on record.

The last time we saw a "jobless recovery" of this magnitude was in the aftermath of September 11, 2001. According to Challenger, Gray & Christmas, more than 2.5 million jobs were lost in the 18 months following the terror attacks. At that point, it seemed as if the labor market would never get in gear.

But by January 2004, payrolls around the country were already expanding at a rate of 150,000 per month. And before long, the severe labor slump was over. We've seen this same scenario play out many times over the decades.

In May 1975, in the wake of a painful recession, unemployment climbed above 9%. But then looser monetary policy (the Fed Funds rate was slashed from 12.9% to 5.2%) brought 10 million jobs in the next three years. The same thing happened in December 1982, when unemployment peaked at 10.8% before President Reagan's tax cuts kicked in and the ensuing expansion created 10 million jobs by the end of 1985.

Interestingly, the same two catalysts that triggered those previous turnarounds will both soon be in place. In this case, money is nearly free and could get even cheaper thanks to the Fed's second round of Quantitative Easing, known as QE2. [For more, see our primer on QE2 at our sister site, InvestingAnswers.com] And I strongly suspect we'll see an extension of the Bush tax cuts in the next 60 days.

Boom and bust. Bust and boom. Even my kindergarten son could tell you what's coming next in the cycle.

Given the deteriorating balance sheets of state and local governments, I think the public sector will continue to shed jobs. [For more on that, read David Sterman's excellent analysis here.] But the private sector is a different story.

When I first began writing this article a few days ago, I was emboldened to see the ADP report showing 43,000 jobs created last month (double what economists were expecting). Now, Friday's official tally from the Labor Department revealed that the private sector actually added 159,000 positions in October -- while the figures from the prior two months were revised upward by 103,000.

Simply put, I think we've reached an inflection point. Intel's (INTC) recently announced plan to spend $8 billion on new manufacturing facilities in Arizona and Oregon (which will employ up to 8,000 construction workers) could be a sign of things to come.

We still have a long road ahead to recoup the eight million jobs lost in the past two years, but it's a step in the right direction. And as we all know, the market is a forward-looking mechanism. So if you want to profit from a reversal, you need to act before concrete signs of improvement are blindingly obvious to everyone else.

If I'm right, and we do see sustained job growth of 200,000-plus each month by next summer, then there will be many beneficiaries, such as payroll processor Paychex (PAYX) and Quest Diagnostics (DGX), which handles drug screens for employment candidates.

But the two stocks below might have the most to gain.

1. Monster Worldwide (MWW) -- Anyone who grew up in the digital age is probably familiar with the Monster brand. The firm's well-known website is a popular gathering place that connects job seekers with potential employers.

Just as eBay (EBAY) brings buyers and sellers together, Monster appeals to job hunters because of the abundance of postings, and to recruiters because the network reaches a pool of 84 million potential candidates. The company's recent acquisition of Yahoo! HotJobs will only widen the firm's footprint.

Last quarter, Monster's bookings jumped +26% to $235 million. And management is expecting that rate to be maintained throughout 2011. That uptick in orders not only means stronger revenue on the horizon, but it's a clear signal that employers are ramping up hiring.

The stock has had a nice run lately, but would have to climb another +200% from here to reach its former highs near $60.

2. Robert Half International (RHI) -- Robert Half is one of the world's largest staffing agencies and consulting firms. The firm helps fill vacancies in the accounting, finance and legal fields, billing clients for hours worked and then disbursing a portion of the proceeds to its workers -- pocketing the difference.

Last year, the company found jobs for 157,000 temp workers -- and that was in the teeth of a recession.

Whenever large companies sense an upturn (but don't want to pay the full salaries and benefits of new full-time positions), they often start by bringing in temporary help. And temp agencies have been growing briskly for months, adding 35,000 new workers in October.

This bullish leading indicator points to an improvement in the overall labor market, and Robert Half International will be one of the first to feel the winds change direction. Sales and profits plunged -34% and -85%, respectively, last year, but I suspect we'll see sharp improvements in the next few quarters.

Keep in mind, the last time we were on the cusp of a labor recovery, this stock surged +76% between April 2003 and January 2004.

Action to Take --> I see both stocks outpacing the S&P 500 next year. But don't wait too long -- as I stated earlier, I already see upbeat signs underneath the dreary headlines.

Moving into a beleaguered sector where many other investors are fleeing takes nerves of steel -- but bold predictions like this tend to reward investors the most.

[I've made 10 other predictions for 2011, which I just shared with my Market Advisor subscribers in the latest issue. To get access to all of my predictions, including how to profit, go here.]

sig-nathan.gif

-- Nathan Slaughter

Nathan Slaughter's previous experience includes tenures at AXA/Equitable Advisors and Morgan Keegan. In addition, he's earned Series 6, 7, 63, & 65 certifications. Read more...

Disclosure: Neither Nathan Slaughter nor StreetAuthority, LLC hold positions in any securities mentioned in this article.

This article originally appeared on StreetAuthority

About the author:

Street Authority
StreetAuthority, LLC is a research-intensive financial publishing firm that aims to level the playing field for small investors by giving them access to the ideas and insights of some of the country's top investment researchers, analysts and writers. Although we specialize in income and international investment research, we publish a wide variety of newsletters that are geared towards helping EVERY kind of investor profit from today's volatile marketplace. Visit StreetAuthority.

Visit Street Authority's Website


Rating: 2.3/5 (10 votes)

Comments

halis
Halis - 4 years ago
I have to say I have no idea how many jobs will be created over the next 12 months. A couple of points though:

1) If state and municipal workers are laid off, the work they performed will still have to be done. This could spur demand for more services in the private sector, which would alleviate some of the losses in the public sector.

2) Who is to say that looser monetary policy or Reagan's tax cuts got us out of those employment slumps? How is everyone so certain of a positive correlation? What if that's just how the employment cycle works within the economic cycle? When times are bad and companies lay off workers and shut down factories, they slash cost enough to stay profitable. Often they slash enough that profits are excellent and any uptick in demand results in meteoric profits with an eventual rise in employment demand and resumed capacity utilization.

People seem to be very quick to point to the labor market to prove how horrible everything is, but the labor market will only be down until it isn't.
davethebooker
Davethebooker - 4 years ago
Okay I like your story. But I dont buy stories , I buy stocks.

Or the idea that something is goin to happen. Like job creation. The risk is too great. And the future unknown.

Rhi is overvalued based on todays Market conditions and earnings.

MMW is the same it is very overvalued based on current economic conditions.

Both of these stocks are cyclicals. They dont have a competitive advantage.

And the numbers really make that clear for both Rhi and MWW.

Rhi is 77 times earnings at the current price. Also the low intial rate of return is alarming.

Mww is underwater. You cant even calculate and intial rate of return. Again alarming.

Yes the job market is goin to correct... when I am not sure ... in the future ofcourse.

Ebay has a greater presence and has greater capacity . Great Roe , Great Roc.

This doesnt compare to MMW in anyway shape or form.

MMW Roe and Roc are negative. And the five year roe is only 10 percent. That disqualifies it.

I am not saying this wont make money for someone someday.

But it appears too risky and the current now infromation isnt strong enough.

kfh227
Kfh227 premium member - 4 years ago


This morning I just saw a headline that said that defense spendning might be cut. I don't know the details but that would be stupidity at it's best. It would probably hurt emplyment levels of those immediately impacted and then you will see the trickle down effect of those that no longer participate in the economy.
kfh227
Kfh227 premium member - 4 years ago
In my opinion,

MWW has a market cap of $2.6 Billion right now. It might be worth looking at but you need a good reason to think that FCf will go past $200 million. At a glance, I don't see the value.

RHI with a $4.1B market cap has a similar story. Will FCF go past $400 million? Looking at the balance sheet (current assets and total liabilities), perhaps one could argue for an extra $0.5 in billion in value.

Just ball park numbers is all I looked at but nothing looks to compelling. Again, this took me 5-10 minutes. Read the annual report and decide if things are better than this.

IMHO:

When the economy improves and people start looking for employees, newspapers will benefit. I drool over LEE whcih has a FCF multiple under 1 right now. I can only hope it drops to $1.50 from it's current $2/share price so I can double up. I almost doubled at $1.80 but did not.

Also, good banks will benefit. I see WFC at $50+ once things stabalize a bit. Actually with inflation and other things cconsidered, I see it at $60. I think WFC at under $30 right now is a compelling buy.

Please leave your comment:


Get WordPress Plugins for easy affiliate links on Stock Tickers and Guru Names | Earn affiliate commissions by embedding GuruFocus Charts
GuruFocus Affiliate Program: Earn up to $400 per referral. ( Learn More)
Free 7-day Trial
FEEDBACK