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Payroll and Staffing Stocks: A Big Cyclical Play

Investors can play a host of conventional stocks if they want to be in “cyclical” investments. Railroad stocks like Union Pacific (NYSE:UNP), Norfolk Southern (NYSE:NSC) and CSX Corp. (NYSE:CSX), as I recently highlighted, are a great cyclical investment. As more freight moves around the tracks, these companies naturally benefit.

Other common areas for cyclical investors include materials stocks, as people make more stuff during boom times, and higher-end retailers, which sell more stuff in boom times.

But one area that might not have been on your radar is the group of stocks related to a recovering labor market. These service providers help with job placement, payroll processing or other staffing and employment services.

There have been a host of outperformers lately in this segment of the market, including:

  • On Assignment (NYSE:ASGN), up 52% year-to-date vs. 9.5% for the S&P 500.
  • LinkedIn (NYSE:LNKD), up 50% year-to-date.
  • Manpower (NYSE:MAN), up 34% year-to-date.
  • Robert Half International (NYSE:RHI), up 17% year-to-date.
  • Paychex (NASDAQ:PAYX), up 14% year-to-date.
  • Automatic Data Processing (NASDAQ:ADP), up 14% year-to-date.

The million-dollar question, as always, is whether these picks will keep up their outsized gains in 2013 and beyond.

Well, I believe there is a lot of potential here. Here’s why:

Unemployment remains on the downswing, yes, but a more important trend is worth noting in an improving economy: that a huge number of employed Americans also are looking for work as they try to trade up. Take this late 2012 report that showed 69% in 10 Americans with a job are looking for another one — up from 61% in 2011.

The Bureau of Labor and Statistics recently released a “quits” report that tells a similar story. Namely, the number of people who left an employer by quitting (vs. those who leave involuntarily) jumped 13% year-over-year in January.

All this fluidity in the work force increases the need for employment and staffing services — whether it’s figuring out a changing payroll picture, finding temporary help or doing other tasks around the office.

Cyclical stocks all have their pluses and minuses. But one way to play the recovering labor market is via these staffing stocks.

It remains unclear whether businesses will spend big on new computers or consumers will spend big on discretionary items. But if the trend of more job openings persists, the one thing you can be clear on is the need that these employment service stocks will fill in the next 12 to 18 months.

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Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP. As of this writing, he did not own a position in any of the stocks named here.

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