Consider Different Plays In The Labor Market To Fit Your Portfolio

Includes: HSON, LTNC, MAN, TBI
by: Snefix

With the U.S. labor market being in a state of seemingly perpetual grinding misfire, many companies are turning towards hiring temps and seasonal workers to cover their labor needs. This means there are going to be temp labor companies to help fill those needs, which means there are opportunities for investors if they know where to look.

Labor Ready (NYSE:TBI), which is part of the True Blue Group, is the largest company for temporary day laborers in the U.S. It is based out of Washington State, in Tacoma, and has locations in all 50 states and Canada. It sends out approximately 400,000 temp workers yearly, primarily in the construction, manufacturing and hospitality industries, although it does operate in other industries as well.

TBI Price

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Their stock price has grown 11% over the past 12 months and despite the price being close to the 52-week high, there is relatively low short interest in the stock. There are less than a million short interests out, and the average stock volume is a bit north of 215,000 shares traded daily, so there isn't much pressure to push the stock's price down. Additionally, there is no long-term debt involved in TBI. TBI does not pay a dividend, but does seem likely to continue the growth observed over the past year. A quick look at the income statement will show growing revenues and profits, since 2009, and a healthy gross margin of 26%.

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Manpower Inc. (NYSE:MAN) is another temporary labor company and is the third-largest HR-related labor provider in the world. It has over four million temp workers on its payroll, concentrated in the fields of administrative work, contact center work, industrial fields, and skilled trades. It maintains over 3,500 offices in 80 countries.

The stock price of Manpower has seen a sharp increase in the past year, increasing 21% from this time a year ago. It cleared $20.7 billion in revenues for 2012, which was actually down 6% from 2011. Its earnings were similarly down to $197.6 million in 2012 from $251.6 million in 2011. It has been able to maintain gross margins of 17%.

Man Price

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Perhaps the reason that investors are so bullish on this stock is the uptick in dividend yield over the past year. Whereas each semi-annual dividend's yield was in the 0.6%-0.8% range at the time of dividend payment from 2008 through 2011, the yields more recently have been around 1.1%. Additionally, the earnings per share in 4Q2012 was $0.91/share, beating the $0.75/share expectation. Management reports being pleased with the company's liquidity as well, as it has $648 million in cash-on-hand and debt of $770 million. There should be some caution as well, as management reports that, despite beating expectations, it expects revenues to be flat in 1Q2013.

A quick look at the short interest shows it to be at a similar point as Labor Ready, with a bit over 3 million shorts outstanding and around 3.5 days to cover. Again, despite the expectations of flat revenues in the next quarter, there isn't much expectation that the price will fall.

Labor Smart Inc. (OTCPK:LTNC) is another temporary labor company, but it is on the other end of the size spectrum. It has six offices concentrated in the southeast U.S. It recently announced an 118% increase in revenue for the month of January over the same time one year ago. To be clear, this is a small company so it makes $580k in January 2013, compared with $267k in January 2012. It had similarly strong increases in December 2012, earning $556k, compared with $94k in December 2011. At that time, it had two offices and today it has six.

Caution should definitely be used when approaching this stock. Despite the recently announced gains in revenue, the investor report from November 2012 showed that it had only $26k in net income for the first two quarters, despite over $2.8 million in revenues. Additional caution should be exercised as this is traded over the counter and there are rumors it is currently part of a pump advertising campaign.

Hudson Global Inc. (NASDAQ:HSON) isn't as small as Labor Smart but not as big as Manpower. They have 2,000 employees in 20 countries. The temp workers are mainly in the legal, IT, finance, and engineering industries. The stock price has taken a beating over the past year, falling 14% or $0.72.

HSON Price

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Part of the reason the stock price has declined is due to a general decline in revenue and earnings throughout 2012 compared with 2011. The last announced results from 3Q2012 showed a decline of 23% in revenue for the quarter, compared with 3Q2011. Its gross profit showed a similar decline of 26%, earning $67 million in the quarter.

This stock does not pay a dividend, nor has management indicated any plans to do so. Hudson Global has no long-term debt and is quite profitable, despite the decline over 2012. In fact, it is maintaining a very healthy gross margin of 38%.

As the stock price has declined over the past year, so has the number of shorts. The number of shorts has declined to 575,000, down from 1.3 million in June of last year. That the shorts have been cut in half over the past six months indicates that investors feel the share price may be nearing bottom. This might be the time to buy.

The depressed U.S. labor market is a routine topic of conversation for all Americans. There are numerous companies in the U.S. and abroad that are trying to help people find jobs, temporary and otherwise. There are numerous opportunities for investors to make money from those companies helping people. These companies are just a few of the myriad of options out there. The hiring agency industry is one that is going to keep growing as the recession persists on and workers become more desperate in trying to find jobs through untraditional avenues. Savvy investors owe it to themselves to seek out a hiring company that fits their portfolio's needs.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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