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Buy This Staffing Stock as Jobs Market Continues to Improve

TBI looks strong -- but beware of its sizzling peer

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While the jobs market continues to move in the right direction, it’s doing so in a painfully slow manner.

The current unemployment rate sits at 7.3% — the lowest rate since December of 2008 and 2.7 percentage points below its high in October 2009. And while the sharp drop in U.S. jobless claims reported on Thursday was due to technical glitches, the four-week average still slid to a six-year low.

Still, the jobs created are hardly ideal — mostly low-paying part-time — and the underemployment rate among recent college graduates sits at 44%.

Reading between the lines of these various data points, it’s clear that businesses large and small prefer hiring workers part-time and on-contract, as benefits — especially health care — aren’t part of the package.

As a result, staffing firms that specialize in this area are likely to continue doing well. In fact, a mediocre economy is probably the best place to be for these names, as they’re not so busy that they can’t keep up and not so quiet they don’t have any clients to serve.

With that in mind, let’s take a look at one stock to buy and one to sell in the staffing sector.

Buy: True Blue

True Blue (TBI) is a leader in blue-collar staffing, providing workers for everything from manufacturing to trucking. It used to go by the name of Labor Ready, but changed its name in 2007 to reflect a broader group of industries served. Labor Ready is still the biggest piece of its revenue pie, though, generating $835 million in 2012 — around 60% of its total.

According to company research, blue-collar staffing is a $29 billion business forecast to grow to $33 billion by 2016. On an annual basis, it represents 29% of the entire U.S. staffing market, while True Blue boasts a 5% market share.

Acquisitions represent a big part of the company’s growth plans. Between 2004 and 2013, True Blue invested $220 million in acquisitions, which accounted for 40% of its revenue (everything but Labor Ready) in 2012. Its most recent acquisition was in February when it paid $53 million for MDT Personnel, a temporary staffing business with 105 branches operating in 25 states. With MDT’s revenue, True Blue becomes a $1.6 billion company with $85 million in adjusted EBITDA.

True Blue has had an even better year than the rest of the strong staffing sector, gaining 58% year-to-date. Despite that climb, I still consider its stock reasonably priced at the moment. The stock has outperformed the S&P 500 as well as its staffing peers in every comparable period time period, from one-year returns to 15-year returns.

Toss in earnings growth of 10% per year over the next half-decade, and revenue growth of 20% for each of the next two quarters, and it’s clear you’re buying growth at a reasonable price.

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