Solid Ways to Benefit From Job Growth

Joshua is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

America is on the rebound. Slowly but surely, jobs are coming back. The job market is still has room left to grow, with two million fewer nonfarm payrolls than in 2008. By investing in quality companies in the employment services market, you can piggyback on the growing economy and support your retirement fund.

US Total Nonfarm Payrolls data by YCharts

The big growth story 
LinkedIn (NYSE: LNKD) is on a roll, and its stock has tripled since its IPO. Unlike many companies in the social networking boom, the company is backed up by real and diversified revenue. Premium subscriptions only make up 20% of revenue, while its talent solutions segment provides the majority of revenue. Recent investments in its sales force have paid off and brought its field sales to 58% of all sales.

In the coming years, its profit margin of 3.2% and earnings before interest and taxes (EBIT) margin of 5.2% should expand as its sales force matures, and companies become more accustomed to using a social network for recruiting.

The network effect is the idea that the value of a good increases as more people use it. As more people use LinkedIn, employers have more reason to post resumes on the site, thus giving even more reason for people to sign up. LinkedIn's growth shows few signs of abating, and its number of members has grown quickly from 174 million in Q2, 2012 to 238 million in Q2, 2013. 

With a price to sales (P/S) ratio around 22, the stock is not cheap, but for long-term investors, it is still worth considering. Its membership base continues to expand, and in a number of years, its large user base will provide the company with a strong moat. Unlike a traditional job search engine, LinkedIn's social networking aspect helps maintain consumers' interest in the site when they are not searching for a job. 

Stuck in the LinkedIn shadow
Monster Worldwide (NYSE: MWW) is an online job search engine from an earlier day. The company is more reliant on search engine ads and other traditional means of advertising to generate traffic, as opposed to LinkedIn's cheaper use of referral traffic from its social network. Even among traditional job search engines, Monster is facing tough competition. Indeed, another job search engine, has focused on product development more than advertising and successfully challenged Monster. 

A comparison of Monster to LinkedIn is like web 1.0 versus web 2.0. In the mobile world, LinkedIn is far ahead of Monster. LinkedIn's Android app has between 10 and 50 million downloads while Monster has one and five million downloads. Smartphone sales passed PC sales years ago, and LinkedIn's popular mobile app paints a depressing future for Monster. 

On the surface, Monster looks like a better deal than LinkedIn. It trades at a P/S ratio around 0.6, a price to book ratio around 0.6, and a price to income from continued operations ratio around 10. The problem is that Monster is stuck with a higher cost structure than LinkedIn, due to Monster's high advertising costs. As LinkedIn continues to expand and distributes its costs among even more members, the difference between the two firms will only widen. 

A more exclusive option
Korn/Ferry International (NYSE: KFY) is a more traditional option. With a profit margin of 3.9% and a return on investment of 5%, it is not a high tech firm from California, but an established headhunter firm for top level executives. Korn/Ferry helps fill those important positions that craft a company's strategy. A good executive is the difference between driving a company into the ground, or successfully expanding into a new market. Companies are willing to pay a pretty price for a quality executive. 

Korn/Ferry has room for emerging market growth. In fiscal 2013, only 20% of revenue came from Latin America or the Asia Pacific region. It is also using acquisitions to grow its market share, as it recently acquired Global Novations and PDI Ninth House. Its future is definitely in the black. Continued economic growth in China, Latin America, and North America is expected to propel its earnings per share to $1.50 by 2015, up from the trailing twelve month figure of $0.70. Europe's depression should not be a big deal, as only 24% of its 2013 revenue came from Europe, the Middle East, and Africa.

Korn/Ferry is not a value play, but it sells a premium product. Given the personalized nature of each company's needs and the destructive cost of a poor executive, mass market solutions like Monster pose little threat to this company. Even at a P/S ratio around 1.1 and a price to earnings around 28, Korn/Ferry is a worth a second look. 

Conclusion
America's economy is growing, and companies are hiring. LinkedIn is a good way to play this trend with its forward thinking social network and a successful mobile strategy that will ride the smartphone boom. In the world of more traditional firms, Korn/Ferry International is a better company than Monster. Korn/Ferry provides customized solutions for executives and has room to grow in the emerging markets, while Monster struggling with competitors like LinkedIn and simpler websites like Indeed. 

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Joshua Bondy has no position in any stocks mentioned. The Motley Fool recommends LinkedIn. The Motley Fool owns shares of 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!

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