Although the headline print of the June jobs report was encouraging in that it came in below economists’ forecast, it might not be enough for the Federal Reserve, meaning that investors should still consider boring stocks to buy based on the possible labor market impact. Basically, the central bank may start to get serious about inflation.
While the disinflationary trend is positive, there’s some work to be done. First, the unemployment rate declined slightly. Second, the average length of the work week increased. Third, wage growth remained stable and relatively robust on a month-to-month basis. At scale, these factors imply that more dollars are chasing after fewer goods, which of course is inflationary. Therefore, it may be time to consider defense stocks amid market stability concerns.
Sure, the market may be hot right now. However, the Fed will want to cool it to meaningfully tame inflation. Thus, the below boring stocks may be a better approach to investing in uncertainty.
Republic Services (RSG)
Almost a no-brainer for boring stocks to buy based on the possible upcoming labor market impact, Republic Services (NYSE:RSG) specializes in recycling services and non-hazardous solid waste disposal. What I appreciate about Republic is that it offers a permanently relevant business. No matter what happens in the economy, people will produce trash. With limited land resources, the industry will almost surely rise in demand long term.
Fundamentally, Republic also benefits from a massive moat. Just try and get a permit for a landfill and see how quickly you get rejected. It’s just not happening. And in recent years, developing nations that previously stored North American trash is simply saying no mas. Cynically, such a framework will likely only bolster the waste management industry, making RSG one of the top defensive stocks to consider.
To be fair, with RSG trading at a forward earnings multiple of nearly 29 times, you’re not going to get a discount. However, Republic benefits from strong revenue growth and consistent profitability. For investing in uncertainty, RSG makes for a great case.
Kelly Services (KELYA)
Arguably one of the best boring stocks for the upcoming labor market impact, Kelly Services (NASDAQ:KELYA) at first seems irrelevant. As an employment staffing agency, Kelly inherently offers jobseekers utilitarian value. However, in a tight labor market where labor market growth remains robust, job applicants don’t need middlemen entities. Instead, they can directly apply to positions given the plentiful opportunities available.
However, if the Fed imposes an aggressively hawkish monetary policy, said action may affect market stability. Perhaps most noticeably, the labor arena may experience a slackening, where job seekers are many but opportunities are few. In such a scenario, desperation will almost surely rise. And desperation cynically helps Kelly Services.
Also, it’s worth noting that Kelly doesn’t just specialize in specific fields, such as accounting and finance. Rather, it runs the whole gamut from white-collar specialties to warehousing/factory jobs. Plus, in a slack labor market, beggars can’t be choosers. Therefore, the shifting power pendulum makes KELYA a strong idea for defensive stocks to buy.
Dollar Tree (DLTR)
If the central bank takes the gloves off in its fight against inflation, then discount retailer Dollar Tree (NASDAQ:DLTR) will make a compelling case for boring stocks to buy against a possible labor market impact. Should borrowing costs rise, that will likely negatively affect companies’ expansionary efforts. Layoffs would materialize, thus incentivizing DLTR.
Now, what makes DLTR stand out regarding investing in uncertainty is an activist investor-supported turnaround effort. According to The Detroit News, the overhaul depends on improving supply chain capabilities, modernizing technology systems, and lifting wages. Plus, Dollar Tree CEO Rick Dreiling mentioned that the physical stores need to be upgraded.
“Our decor right now in both banners is right out of 1975,” Dreiling told analysts at an investor day last month. I couldn’t agree more.
Priced at a forward multiple of 24.2X, DLTR isn’t cheap, I must say. However, because of its strong revenue growth and consistent profitability, DLTR is a buy. That’s especially the case because mass layoffs will see consumers shop for discounts.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
