The devastating damage left behind by Hurricanes Katrina and Rita has investors waiting nervously to see how the stock market responds. Be sure to take every company that has operations or depends on the Gulf Coast forecasts with a wary eye–no matter what the industry. Gas and oil prices matter–they affect every business in the form of transportation, materials, and labor costs. Meanwhile, with the Federal Reserve raising interest rates lately, they might as well have shot an arrow into the heart of the economy. I hope I am wrong, but it sure seems like a recession is looming.
Recessions are bad for most industries, but even in rough times, some nimble industries and businesses manage to prosper. But, what about the employment services industry – the staffing and recruiting firms? Should you hire or fire stocks tied to the labor market, especially with the economy knocked on its socks?
The market could be very treacherous for the next several months. Rule of thumb: Buy when it hurts to buy, and sell when you think it will keep going up, up, up. As I love to say, "Nobody ever went broke taking profits."
Monster Worldwide (MNST)
Snapshot: With a monster of a job search engine in Monster.com, the company is the place to turn to when your job search kicks into high gear.
Recent Price: $29.50
- Company says it will grow earnings at a 45 percent clip this year, but I urge you to take all forecasts with skepticism, as nobody knows for sure right now how many businesses will scale back their spending.
- Monster has revenues so good they’re scary. The company earns nearly $1 billion a year.
- With more than five times as much cash than debt on the books, the company is in good shape to withstand the inevitable pull back in corporate spending.
- Monster is particularly vulnerable to a recession, with its heavy exposure to advertising, marketing and corporate spending for new hires.
- Stock came back from the gallows, after hitting rock bottom a few years ago, but is still a far cry from its all-time split adjusted high of approximately $100 per share, set in the dot-gone days.
- Company stands to face its greatest challenge yet from the likes of Yahoo! and Google, as they are looking to offer free placement to corporations that wish to list their job openings en masse. Competition like that could scare any monster back into the closet!
Robert Half (RHI)
Snapshot: The parent of the likes of Accountemps, The Creative Group and Robert Half Finance and Accounting is a major force in financial and business services.
Recent Price: $33.06
- Robert Half plans to buy back a total of 12 million shares. This is a signal that company management feels the stock is undervalued for the long-run. However, I caution you that stock buy-back announcements are one thing; actual buy-backs mean a whole lot more.
- Got to love their debt-to-equity ratio of less than 1 percent, with more than $400 million in cash on the books and a mere $3 million in debt.
- With $3 billion in annual revenues and a hefty $1 billion in annual gross profits, the company appears to be in good financial shape to weather an economic storm.
- Recent reports on CEO sentiment says the economic situation has abruptly caused many companies to reassess spending plans and hiring needs.
- Like Monster Worldwide, Robert Half’s shares took it on the chin during the last recession. You might want to wait for these stocks to bottom out before making a long-term plunge.
- With the forward price-to-earnings ratio for 2006 at 23 times earnings, the stock may be slightly ahead of itself for the next 12 months.
Labor Ready, Inc. (LRW)
Snapshot: You need labor, we got labor! Labor Ready, Inc. provides temporary staffing for manual labor jobs, such as lifting, hauling, cleaning, assembling, digging, and painting.
Recent Price: $22.34
- If the company positions itself correctly, Labor Ready may be ready to provide its services for hurricane relief in the Gulf States.
- In hard times, small- and mid-cap companies typically lead the economy out of recessions. Labor Ready is a small cap that could be integral in rebuilding the country. But its management must be nimble for it to be properly armed and ready to help.
- Company could position itself as an attractive acquisition candidate, especially if it shines in prospering from the massive spending that will take place to rebuild the Gulf Coast.
- The company just promoted its CFO to president, which in itself is not a bad thing–got to love promotions from within. But he now has to prove himself all over again, so the company could be under more pressure than usual.
- Stock has risen steadily for years, so you always run the risk of, "How long can this last?"
- Labor Ready doesn’t have the brand name awareness of competitors Adecco and Manpower, but that can change quickly.
Price quotes are from October, 20, 2005.
Michael Abramowitz is a freelance writer based in Florida. To avoid a conflict of interest, he does not currently own any of the stocks mentioned above.
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