Temporary help: Profits in staffing
"Many companies survived the downturn by cutting staff, and these businesses are hesitant to hire back full-time employees until they are more certain about future revenues," explains George Putnam.
In The Turnaround Letter, he suggests, "A likely beneficiary of this caution is the temporary staffing and outsourcing sector." Here are four ideas from his review of the temporary staffing and outsourcing sector.
"As activity begins to pick up, many slimmed-down businesses will need more manpower, and the cautious ones will turn to the temporary staff providers first, rather than adding permanent employees.
"Even with this fundamental boost on the horizon, many of the staffing stocks have not performed particularly well recently, as investors have focused on weak results from the last few quarters.
"While these stocks have all rebounded at least a little from their lows, they are all still well below their levels of mid-2008, and most of them are trading at a fraction of their highs set in 2006 or 2007.
"In the following reviews, we take a look at a number of the staffing and outsourcing companies whose stocks could benefit as cautious businesses look to them for help.
"Administaff (NYSE: ASF), a leading provider of payroll, insurance and other managerial services, has been out of favor with investors because of sluggish employment trends and concerns about healthcare reform.
"But Administaff has a strong position among small-and mid-sized companies, who may be among the most cautious in adding permanent staff. Also, Administaff could increase its value-add proposition as the healthcare system becomes increasingly complex.
"Kelly Services (NASDAQ: KELYA) provides temporary workers in the U.S. and Europe, particularly less skilled office help.
"While this sector has been especially hard hit in recent quarters, leading to a string of losses, management has been actively cutting costs.
"Just as it was hit hard on the way down, the office sector could profit disproportionately as things begin to improve. At just 0.08X sales, the stock looks quite cheap.
"Manpower (NYSE: MAN) is a truly global temporary staffing company, with operations in 32 countries and territories.
"While suffering revenue shortfalls along with the rest of the industry, the company has been able to maintain operating profitability and a solid balance sheet.
"Reflecting what management considers a strong growth market, the company recently announced intentions to double its headcount in India to 30,000.
"Robert Half International (NYSE: RHI) has a history that dates back to 1948 as a provider of temporary workers with an expertise in accounting and finance.
"Beginning in the 1990’s, it broadened its offerings to include legal, information technology, risk consulting and marketing/web design personnel.
"As with many in the industry, the company is reporting weak year-over-year operating results, with revenues from conversions to full-time employment particularly soft, but this should change as the economy recovers. Demand for risk control services has been a bright spot, and continues to have good long-term prospects."
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