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How to Play Consistently Low Pay

Several companies aren't boo-hooing a bleak wage outlook

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Everyone might want an economic recovery, but everyone isn’t going to get it. And by everyone, I especially mean workers who are getting the short end of the stick on wages.

In 2010, 28% of workers in the U.S. held low-wage jobs — jobs that paid just as much or below what full-time workers need to earn to live above the poverty level for a family of four, according to the Economic Policy Institute.

The bad news: That number isn’t expected to get any better.

A recent study by the EPI found that the number of low-paying jobs is expected to stay roughly the same through 2020, as the economy just won’t be able to support any growth in jobs with higher salaries, CNN Money recently reported. Last year, the salary cut-off for a low-wage job was around $23,000, or just more than $11 an hour — a pay range that surely isn’t good for workers or for the broader economy.

Living at the poverty line without benefits or vacation and with little room for advancement isn’t something you would wish on anyone. Still, as bad as it sounds, the continuation of this trend actually would bode well for some publicly traded companies.

Discount Retailers

One effect of this trend was just mentioned: lower consumer spending. And while slow spending isn’t exactly ideal, considering that consumer spending makes up around two-thirds of the economy, it could be beneficial for discount retailers.

The idea is pretty simple: As long as wallets are light, people will hunt for bargains. The dollar store bunch — Dollar Tree (NASDAQ:DLTR), Family Dollar (NYSE:FDO) and Dollar General (NYSE:DG) — could keep on growing in years to come, plus, you can’t forget about trusty deep-discounter Wal-Mart (NYSE:WMT), a go-to for cash-conscious consumers.

The same is true in the apparel realm. Look at TJX Companies (NYSE:TJX), for example, which owns T.J. Maxx, Marshalls and Home Goods — its stores sell brand-name, quality products at substantial markdowns. Ross Stores (NASDAQ:ROST) is part of the same niche, offering fashion finds that don’t feel cheap, but still draw in value-oriented customers.

With consumer spending already weighing on shoppers, it’s no surprise that these companies have been booming. Since Jan. 1, all six are up in double digits, Wal-Mart has reached all-time highs and TJX and ROST have gained more than 40% each.

Another option would be to look for an exchange-traded fund that encompasses this trend. While a retail ETF might seem counterintuitive to a drop in consumer spending, the PowerShares Dynamic Retail ETF (NYSE:PMR) actually has TJX Companies, Ross Stores, The Dollar Tree and Wal-Mart in its top 10 holdings. The fund also has high weightings in self-service kiosk maker Coinstar (NASDAQ:CSTR) and auto parts retailer O’Reilly Automotive (NASDAQ:ORLY) — both of which could thrive in a low-income environment.

Health Care Providers

Low-paying jobs also tend to come with another caveat that we breezed over earlier: They don’t offer benefits like pension plans or health insurance. This news, along with the recent health care ruling, could mean that companies with heavy reliance on Medicare and Medicaid could continue to see steady growth down the road.

A company like WellPoint (NYSE:WLP), which recently acquired managed care provider Amerigroup (NYSE:AGP), is a possible play, as the acquisition will increase WellPoint’s Medicare and Medicaid coverage. Centene (NYSE:CNC) also provides programs and services to a number of under-insured and uninsured individuals — like, say, ones that don’t get covered through work. The company has the potential to grow on its own, or could be bought out by a big-name insurer like Amerigroup was.

The health care angle also can be played more broadly through an ETF. For instance, the iShares Dow Jones US Health Care ETF (NYSE:IHF) includes big insurance names like WellPoint, UnitedHealth Group (NYSE:UNH) and Aetna (NYSE:AET), pharmacy benefit manager Express Scripts (NASDAQ:ESRX) and even Buffett holding DaVita (NYSE:DVA), a provider of dialysis treatment. And even if pay conditions improve, hey — everyone still needs health care.


Article printed from InvestorPlace Media, http://investorplace.com/2012/08/how-to-play-consistently-low-pay/.

©2014 InvestorPlace Media, LLC

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