June’s job numbers were a big disappointment to those hoping for a respite from high unemployment. Some market participants expected or hoped for job creation of 100,000 to 200,000 new jobs created, but the economy delivered a putrid 18,000.
The order of the day for many companies is to cut jobs. This week it was reported that Cisco may lay off thousands of employees to meet announced cuts in expenses. The longer that trend continues, the longer the unemployment rate will stay at 9% or higher.
Stocks reacted instantly and negatively after the jobs news was released last Friday, and only a late-day rally kept losses to a minimum. But all is not lost. Some companies actually perform well with unemployment at such a high level. It might be counterintuitive, but investors can make money when the job market is hurting.
Here are three companies to consider while the U.S. continues to struggle with high unemployment:
On the day of the disappointing jobs report, shares of business networking firm LinkedIn (NYSE: LNKD) soared 6%. The move concluded a strong week for one of the hottest IPOs in the market this year. Shares gained an impressive 11% from Monday’s close last week.
A weak job market is unlikely to put a dent in the hype and enthusiasm for LinkedIn. The company is leading a revolution in how workers find job opportunities, and investors are betting huge profits will follow as a result.
Many, including this writer, cringe at the thought of owning such an unproven stock, especially at prices that have nothing to do with current financial fundamentals, but you cannot fight this stock’s momentum. Not even unimpressive job gains in a teetering economy can derail LinkedIn. If you are interested in rolling the dice on a rocket stock, play this job-seeker.
One thing is true about this economy: Those with a college education are faring better than those without. The unemployment rate of people with only a high school degree is significantly worse than the 9.2% overall number. But that fact bodes well for those companies selling college degrees.
After a period of tough sledding, Apollo Group (NASDAQ: APOL), parent company of University of Phoenix and other for-profit educators, appears to be back on track. Shares of Apollo have gained an impressive 45% since hitting bottom in late 2010. In its most recent earnings report for the quarter ending May 31, 2011, Apollo beat estimates by 12 cents per share.
For the full year, the average Wall Street estimate is for Apollo to make a profit of $4.79 per share. At current prices, shares trade for just 10 times that number. That is a cheap valuation in a market whereby the unemployed are likely to seek betterment via education.
Irrespective of the job market, I gravitate to stocks with low valuations and strong earnings growth. The combination of the two typically results in portfolio gains that greatly exceed the overall market. One such company, Kelly Services (NASDAQ: KELYA), is in the business of helping people find jobs.
As companies try to more deeply cut costs, more executives are turning to the temporary job market, using outsourcing to get greater productivity at a lower cost. Kelly Services is a likely beneficiary of that trend.
Of course, the market is focused on the headline negativity regarding unemployment, sending employment company shares lower. Kelly Services was down 3% the day jobs numbers were released. But I would just use that discount as an opportunity to acquire shares.
For the current year ending Dec. 31, 2011, Wall Street expects Kelly Services to make a profit of $1.16. That number jumps 44% to $1.67 in the following year. You can buy that impressive growth for just under 14 times current-year estimates.