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Trends of higher unemployment and lower workforce participation have started to reverse. More hiring benefits companies that engage in staffing and payroll support. In this article, I will discuss six stocks which could benefit from a continuation in this economic trend. The six stocks I will discuss are Monster Worldwide (MWW), LinkedIn (LNKD), ADP (ADP), Paychex (PAYX), Manpower (MAN), and Robert Half (RHI). I chose these six stocks for discussion because I believe they could potentially offer investors the biggest gains from a jobs recovery.

Monster Prepares for Sale

Monster Worldwide's Executive VP Timothy Yates shared plans to sell the whole company, citing management presentations to several potential buyers. The management team hopes to sell the core business and is willing to sell non-core assets first in order to streamline a takeover.

Monster stock rose 10% after disclosing its plans to restructure by shedding lesser performing businesses and seeking a buyer for its ChinaHR unit. The company wants to tame losses in the developing markets and focus on its core business. Monster has been cutting costs and downsizing its workforce since March due to declining revenues lost to competitors and the economic slowdown in Europe. Monster's changes are expected to shed costs by another $130 million annually.

The company also wrote down goodwill of $216 million in the third quarter. MKM Partners analyst Eric Handler said, "It looks like they're trying to make it easier for the company to be sold and sell off pieces to make the company more attractive as a whole".

The company bought ChinaHR on a "staggered" basis for a total of $243.9 million - a 40% stake for $50 million in 2005, an additional 4.4% for $19.9 million in 2006 and the remaining 55.6% for $174 million in 2008. Avondale Partners analyst Randle Reece noted that ChinaHR's market share considerably declined since Monster finished its acquisition in 2008.

The third quarter's sales declined to $221.7 million, which resulted in a net loss of $194.2 million ($1.75 per share), a big reversal from last year's income of $31.8 million (26 cents per share). Revenues from the International and North America units have declined by 16% and 6.3% to $87.5 million and $115.5 million respectively.

Clearly the operations have problems, but management's sober decision to sell the firm is fantastic. The company's leaders should be applauded for pursuing transactions that will return capital to shareholders.

Employment and the Oval Office

Prior to winning the election, President Obama noted that privately owned firms had set the pace by hiring the most employees in a period of eight months during his campaign in Ohio. Reports show that other sectors such as construction have also played a role by hiring as many as 17,000 workers. General Motors (GM), the largest U.S. car manufacturer, indicated that it plans to bring 10,000 workers onboard. It plans to open four facilities country wide to accommodate this labor force.

Recent reports from the labor market indicate that more workers have been employed during the month of October. Counter-intuitively, this buttressed the unemployment rate higher as more people are flooding the employment market to look for jobs. Companies like automakers and construction firms are already experiencing the gains made in employment as consumers are spending freely. Chief Economist for UBS (UBS) Securities Maury Harris said, "Jobs are expanding despite all this expression of business caution. You continue to see improvements in people's perceptions of what's happening in the job market."

The surprisingly low 7.8% unemployment number was co-opted by political parties as a talking point. Those who wanted to see lower unemployment praised the number, giving it more weight than it should be given. Regardless of political bias, unemployment numbers are noisy. What's important is that this number is one of many showing a gradual decline in the unemployment rate.

Politicians are not econometricians. Former General Electric (GE) CEO and Republican supporter Jack Welch wrote, "Unbelievable jobs numbers. these Chicago guys will do anything. Can't debate so change numbers." He wasn't complaining about the unreliable nature of these estimates when unemployment numbers were higher. If it was a bad yardstick, he should criticize it even if it inaccurately measured desired numbers.

Now that the election is over, investors can focus on the economic meaning of declining unemployment figures without distraction.

LinkedIn is a professional social networking service that collects revenues by charging for premium services and for the use of tools that help employers search candidates for job openings. This makes LinkedIn a human resources company.

At a price of roughly $ 109 per share LinkedIn recently traded at an astronomical 702 price-to-earnings multiple. Equity in this company is rich on a price-to-sales basis since shares trade at a 13.82 multiple, much higher than P/S multiples in the broader market.

LinkedIn seems to trade at high multiples based on investor and analyst enthusiasm. A group of analysts working for Jefferies published a research report that predicted LinkedIn's revenue will more than triple from about $522 million in 2012 to almost $2 billion in 2014. I suppose that explains how someone could pay three times the S&P 500 price multiples for this stock, but not 10 to 50 times.

To be fair, LinkedIn is a fabulous success. It does a great job as a social network for professional connections. However, this doesn't justify larger-than-life valuation multiples.

Fortunately, there are lower valuations among its staffing industry peers. ADP is a payroll processing stock that could benefit from more employment. Though cheaper than LinkedIn, this stock is richly valued at a price of roughly $56. Investors can purchase more sales per dollar from the S&P 500 since this index has a price-to-sales ratio of 1.30 while this stock has a much higher 2.5 ratio. ADP shares currently trade at a high 19.63 price-to-earnings ratio, a higher value than the 14.01 average of the S&P 500 index.

The same conclusion is reached for ADP's rival, Paychex. It is too expensive at its current price of roughly $32. Paychex shares are high since they currently trade at a high 21.13 price-to-earnings ratio and a high 5.20 price-to-sales ratio. Also like APD, Paychex's 4.00% dividend is precarious based on the firm's 0.84 payout ratio.

Higher employment means that more people need to find jobs. Companies have to advertise job openings, providing revenue for the online job posting site Monster Worldwide.

Shares of Monster Worldwide are a growth-at-reasonable-price opportunity at roughly $6 per share. At a value of 0.68, this stock trades at a fraction of the S&P price-to-sales average multiple. The 0.67 price-to-book multiple of this stock is much cheaper than the 2.02 S&P 500 index average. Monster's ran a loss, so its PE ratio cannot be calculated. These low price multiples make it an attractive acquisition candidate.

Staffing firms also benefit from declining unemployment. Manpower is reasonably priced at $39 per share. The 0.14 ratio price-to-sales multiple and 1.17 price-to-book multiple of this stock are compelling. Manpower shares are trading at a fair 14.98 price-to-earnings ratio, in line with the market average.

Dividend investors could buy Manpower for dividend yield. Shares offer a dividend yield of 2.30% which beats the 10-year treasury. Dividend payments are likely to continue since Manpower pays out 0.32 of earnings as dividends.

Robert Half is another staffing & outsourcing industry stock. It differs from Manpower in that it is too expensive at its current price of roughly $28 per share. Robert Half shares currently trade at a high 20.31 price-to-earnings ratio and a high 4.53 price-to-book ratio.

Conclusion

Investors seeking to benefit from a labor market recovery should consider Manpower as a fairly-priced buy candidate. Monster Worldwide is a more speculative investment which is trading at lower price multiples and could fetch a higher price as an acquisition.

Source: 6 Stocks That Could Rise On A Jobs Recovery