Tag - Employment

The stock market rally that started on February 5^th, 2010 appears to be absolutely unstoppable. Bullet-proof. However you want to say it, there seems to be very little downside to stock prices, even after a strong rally.   

 

Now, we are not surprised. I’ve been relentlessly bullish here in Daily Profit. Sure, I may point out some discrepancies once in a while, maybe even shoot a few holes in the financial media’s neat and tidy explanations, but I’ve had us focused on upside targets for a year now, and there’s one main reason: earnings.   

 

This time last year, it was brutally obvious that analysts were seriously underestimating the earnings potential for bank stocks, even after the government changed the accounting rules to encourage profitability.   

 

And in subsequent months, analysts continued to lowball earnings estimates. Companies kept beating them, and the market kept rallying.     

 

How did we know estimates were too low? Well, partly because stocks kept rallying. It was one if the worst-kept secrets in history.

 

Of course, common sense tells us that, eventually, analysts will get estimates right, or <gasp> overshoot. How will we know when that time is at hand? Ironically enough, hiring will need to pick up.  

 

Corporate expenses were trimmed to the bone during the financial crisis and recession. And since payroll additions have only recently started to be noticeable, that means corporations haven’t noticeably adjusted their cost structure for the single biggest expense they face – workers.   

 

So until we see some true, meaningful gains in employment, stocks will move higher.   

 

Or, the Fed could start raising interest rates. That would sure give us some quick downside for stock prices.   

 

But getting back to earnings, Barron’s ran an interesting earnings table this weekend showing earnings growth by sector, based on analyst estimates. 

 

Three sectors are expected to show triple-digit earnings growth in the 1^st Quarter. Those sectors are Consumer Discretionary (115%), Financials (194%) and Basic Materials (179%).   

 

Now, we must remember that the 1^st Quarter last year was absolutely dismal. Poor earnings helped drive the S&P 500 to 20 year lows. Last year at this time the S&P 500 was trading with a P/E of 32, and it was below 850.   

 

Today, it has a P/E of 23, but the forward P/E based on estimates is a reasonable 15. 

 

Things get interesting if analysts have once again lowballed 1^st Quarter earnings. And judging by the stock market action, investors seem to believe another quarter of beaten expectations is in the works.   

 

The minutes from the last FOMC meeting were released yesterday. Aside from re-committing to low rates for an extended period of time, there wasn’t much worthy of comment, so I’m just going to re-print the headline from Bloomberg: “Fed Officials Saw Recovery Curbed by Unemployment”.   

 

You don’t say, Ben.   

 

I started following the commercial real estate sector last September when I noticed breakout moves from Maguire Properties (NYSE:MPG) and a few others.  

 

Daily Profit readers have had a couple opportunities to make nice gains from Maguire. In fact, it looks like it has started another move yesterday when the former CEO and founder offered to buy a few buildings from Maguire.   

 

Maguire’s not the only one running. And April 16 may mark a launching point for commercial real estate stocks.   

 

That’s the day shopping mall REIT General Growth Properties (NYSE:GGP) is expected to present its plan to exit bankruptcy as a stand alone company, thereby rebuffing the buyout offer from rival Simon Property Group (NYSE:SGP).   

 

Now, many people think Simon will make a better offer between now and the 16^th. And if so, we may see a bidding war for a bankrupt REIT break out. On one side will be Simon, and on the other will be a group of hedge funds that has backing from the Chinese Investment Corp (CIC).   

 

The presence of the CIC is significant for a few reasons, but none are as important for our purposes than the fact that it has $300 billion to invest and it’s looking at U.S. commercial real estate. That much investment capital could certainly re-price a lot of impaired assets.   

To learn more about the CIC’s involvement in commercial real estate, click HERE. 

Few numbers have been released with as much fanfare and anticipation as last Friday’s Nonfarm Payrolls number. Is it any wonder that the number was pretty good? Are we surprised that economists across the board are hailing the addition of 162,000 jobs in March as definitive evidence that the economic recovery is picking up steam?    

Employment increased at the fastest rate since March 2007. And it wasn’t all Census workers, either. Government hiring accounted for 39,000 workers. That means private companies hired 123,000 people.    

Employment numbers will continue to look good, as Census hiring will continue into June. But we’re going to need to see continued solid growth from private sector employment.    

According to Bloomberg, transportation and warehousing companies added 7,800. And healthcare and social services payrolls grew by 37,000.   

But hourly earnings fell. And the number of temporary workers grew. Also, the number of unemployed who have been looking for work for over 27 weeks grew to 44%.The report didn’t break these numbers down, but it would be reasonable to assume that many of the “long-term unemployed” are construction workers who have been unable to find work since the housing bubble burst.  

 Even with an economic rebound and improvement to the housing market, it’s going to be a long time before home construction gets anywhere close to 2004-2006 levels. Homebuilding at that time was supported by artificial “bubble” demand. It was a growth illusion that affected not only home construction, but also mortgage lending and the bond market.     

This is important to remember because it suggests that a reduction in the unemployment rate to pre-crisis levels can’t be achieved by a return to the pre-crisis economy. New jobs will have to come from new sectors of the economy.    

Bond yields were also up on the improved employment number. This will raise mortgage costs and give the housing market another headwind.   

That’s one of the difficulties of this improving economy. The Fed has been dong its level best to keep interest rates low. And it will certainly be loathe any raise in interest rates, at least for a few months as it gauges the effect of ending its mortgage-backed asset purchases.    

These purchases have been a major source of liquidity for the economy. It will take some time to see how the market reacts to their removal.    

Oil prices have been on an absolute tear over the last two weeks. Today, oil is pushing above $85 a barrel. And yet many investors still believe the move based in a relatively weak U.S. dollar and not fundamentals.    

We’ll see if they still believe as oil moves into the $90 level.    

The top-performing oil stock in the Energy World Profits portfolio is now sporting 79% gains. A double is right around the corner. We recently bought two other small Oil & Gas exploration companies that have 20%-30% gains coming in the near future as oil continues to move higher.    

I continue to believe that oil and energy stocks are among the best investments you can make for the short and long term.    

Finally, it looks as though China might actually bend to U.S. pressure to let the yuan move higher. If it happens, it would be a remarkable development, as China is not prone to acquiescing. In fact, it tends to get more stubborn in the face of political or economic pressure.    

If the yuan were allowed to strengthen, it would seem logical that the U.S. would weaken. But I can imagine a case where the dollar might actually strengthen on the assumption that U.S. exports would be more competitive and provide a bigger boost for the economy. 

On Assignment Inc. (Nasdaq:ASGN) has a hire calling, preaching the gospel of contract employment among health-care and technical professionals. Despite the gloomy U.S. jobs picture, On Assignment continues to eke out surprising results.

Rather than trying to find work for everyone - including manufacturing or manual labor that Manpower Inc. (NYSE:MAN) and others provide - On Assignment has chosen to aim higher. It focuses on specialty skills for short-term and sometimes permanent assignments in health care, including physicians and nurses, life sciences and clinical research, engineering and IT staffing. It has just a smattering of international operations.

Founded in 1985, the Calabasas, Calif., company has 60 branches in the United States. On Assignment went public 16 years ago.

Of the five analysts surveyed by Thomson Reuters, two have On Assignment rated "strong buy," two call it a "buy," with the other ranking "hold." The median price target is $11.50 - just above the 52-week high of $11.42, hit on Aug. 22. On Assignment dropped to $4.32 on Jan. 24, but closed Friday at $9.27, down from its recent highs but up roughly one-third year-to-date.

"The overall job market has not been good for a while, but On Assignment has been squeaking out some improvement each quarter," said Tobey Sommer, a SunTrust Robinson Humphrey analyst who rates the stock a "buy," in an interview.

For the quarter ended June 30, On Assignment beat analysts' expectations, as revenue increased 8.5% to $156.1 million, and net income more than doubled to $6.1 million, or $0.17 a share.

Sommer, who has a $12 price target on the stock, noted On Assignment has shown improvement in its gross margin, which increased to 32.5% from 32.1% from the second quarter of 2007.  He cited two factors in the company's favor: it does not rely heavily on any single client; and that physician demand shows double-digit growth even in a squishy economy.

Similarly, UBS analyst Andrew Fones, who rates the stock a "buy," wrote Aug. 5 that "On Assignment's significant exposure to health care and physician staffing makes it somewhat defensive to the economic slowdown, relative to the rest of our employment universe." Fones increased his target price to $11 from $10.

In January 2007, president and CEO Peter Dameris's to-do list included acquisitions of VISTA Staffing Solutions (for physician staffing) and Oxford Global Resources (in information technology).

The acquisitions helped revenue nearly double to $567.2 million, and for a second straight year On Assignment posted a profit - although the $9.3 million was 15.6% fell below 2006.

For the current quarter, On Assignment is looking for a gross margin of around 32%, revenue in the range of $156.5 million to $160 million (up from last year's $148.7 million), net income of $4.9 million to $6.2 million ($3.3 million last year) and earnings per share of $0.14 to $0.17 (versus $0.09).

"As we have suggested over the last four quarters, the strength of our business model has us well-positioned to perform in most economic environments," Dameris told analysts on an Aug. 4 conference call.

Data point toward lingering weakness in the jobs market, so it's likely that businesses will continue to rely on staffing resources from On Assignment and others to meet their immediate needs - until visibility on the economy's direction improves.