Global Shortage of Talent Equals Opportunity
Alexander is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
In the future, there will be a shortage of workforce “talent.” Yes, talent, not employees. There will be many who will want to work, but very few that fit the criteria wanted by CEOs.
The biggest priorities for CEOs currently
Some 66% of CEOs find that leadership and talent development remain a key priority going forward. Companies are all about the people. Without successful employees, a company at its core cannot run very successfully.
CEOs also felt that in 43% of instances, the lack of talent had a negative impact on operations. The cost of training and identifying talented employees has gone up more than expected, innovation has been met with difficulty, and to top that off certain market opportunities could not be pursued.
Tom Albanese, the CEO of Rio Tinto, states:
People of my generation will be retiring over the next 10 years leaving a pretty shallow pool of people; then everyone will be struggling and competing for a limited group of experienced mining professionals. But we do find that we can go outside our sector, for example, for mechanical engineers or people in the auto sector who are good with industrial enterprises.
PricewaterhouseCoopers goes into further detail, stating that:
Theoretically, finding a good candidate to fill a position should now be a very straightforward exercise. There have never been as many educated people in the world, nor has it ever been as simple for employers to tap this vast pool online. The reality is far different. This is the talent crunch; it’s a complex and frustrating challenge and it’s being felt worldwide. 23% of CEOs expect major changes in how they manage talent. The response to talent is more important than the approach to risk.
The main thesis
As savvy investors, we understand that companies are in search of talented people and processes to improve this. Companies are training employees internally, and there will be even further demand for people. The needs for talent acquisition will only increase as a retiring workforce leaves a younger generation of workers who need to rise to the challenge of operating companies.
This is going to be a difficult transition, especially in the United Sates. The baby-boomer generation will be exiting the workforce in droves; approximately 10,000 people will reach retirement age per day over the next 17 years.
Don’t forget big blue
International Business Machines (NYSE: IBM) will become one of the most important companies in the projected overhang in talent. Many business operations will have to be altered in order to make up for the loss of employees. IBM offers a lot of process-driven solutions through its variety of software programs. The company also offers big-data analytic solutions. Replacing some of the workforce with process-driven innovation will become a larger trend.
IBM is busily diversifying its operations outside of hardware. The company is hoping to generate 90% of its pre-tax income from its services and software segments. The company in its most recent quarter reported 7% growth in business analytics, 25% growth in smart planet technologies, and 70% growth in the cloud. The company’s growth in business services and software is on track, and it's likely that the company will meet its 2015 road map.
Currently the company is experiencing difficulties with earnings as the company reported a 1% year-over-year decline in net income in its most recent quarter. The decline in net income was driven by a 16% year-over-year decline in revenue from its systems and technology segment. Over time, I believe that the hardware business will continue to decline because of cloud virtualization. Even with cloud virtualization cannibalizing the company’s earnings, the company will be able to offset this with services and software revenue going forward.
This is just a no-brainer
LinkedIn (NYSE: LNKD) has a bright future ahead of it. Finding talented employees to fill the workforce will become increasingly important. With 10,000 people reaching retirement age every day, companies will have to figure out a way to replace these employees.
Currently, LinkedIn’s fastest-growing segment is talent solutions. Currently talent solutions comprise 57% of the company’s revenue. The talent-solutions segment grew by 170% year-over-year. It is currently the company’s fastest-growing segment, and will continue to be going forward.
Analysts on a consensus basis anticipate the company to grow earnings by 58.4% on average over the next five years. The company is projected to grow revenue by 54.2% in the current fiscal year and 41% in the following fiscal year. The company currently trades at a 500.9 earnings multiple, but when considering the high rates of growth and the changing macro environment, the company is a compelling investment opportunity.
Middle level management is important
The biggest priority for CEOs right now is to make sure they have a right mix of talent within their organizations. Developing tomorrow’s leaders will require outside insight. Corporate Executive Board (NYSE: CEB) offers business solutions like talent management and measurement. After all, talent is very important to global CEOs.
The company has 300,000 tested and proven best practices; the company produces 200 annual unique research studies, conducts 30 million annual assessments, and has 1,500 personality, cognitive, and skill tests.
It isn't all about the products though. The company has had a successful track record in growing both net income and revenue. The company has grown revenue at a 25.6% compounded annual growth rate since 2010. It has improved its operating cash flow by 20% on average over the past three years. The company's return on equity averaged 54% over the past three years.
Analysts on a consensus basis anticipate the company to grow earnings by 14.6% on average over the next five years. The company currently traded at a 62.4 earnings multiple. The company pays out a 1.5% dividend yield as well. The high valuation is reasonable when considering the long-term growth potential.
IBM will continue to grow based on projected growth rates, and macroeconomic trends. LinkedIn is at the forefront of employment solutions and will be in huge demand over the next 10 years. Corporate Executive Board has some of the most practical solutions for talent development in the world, and its business will continue to grow earnings as a result of it.
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Alexander Cho has no position in any stocks mentioned. The Motley Fool recommends LinkedIn. The Motley Fool owns shares of International Business Machines. and LinkedIn. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!