Looking Beyond Friday's Employment Figures
Declan is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The new quarter rolls in and buyers were quick to grab some early holiday bargains. The Bernanke-induced sell-off has almost worked its way out of the market, although the May high will be a more substantial barrier to break. With the horse now bolted on the eventual tightening of the money flow, Friday's employment data has a fine line to walk: if the data is too good, then Fed tightening will come sooner rather than later (bearish): if the data is too bad, then there will be pressure on earnings season, also bearish.
But there are stocks positioned to do well regardless of Friday's announcement:
Automatic Data Processing (NASDAQ: ADP) was an early feature in April of last year. It had a relatively quiet 2012, but once the New Year rolled in, it quickly went on to post new multi-year highs. Negative opinions on the economy had little effect on Automatic Data Processing, and the falling trend in unemployment will only feed into the growth prospects for the company (of which Friday's data will be of general interest, but the broader trend is its friend).
However, the price-per-earnings advantage Automatic Data Processing held over rival Paychex (NASDAQ: PAYX) has disappeared, leaving both stocks on equal pegging going forward:
What lets Paychex down is its history of coming in below revenue estimates. Its most recent report was one such case as earnings-per-share missed by $0.03 at $0.31 per share. Meanwhile, Automatic Data Processing has consistently met analyst expectations. Paychex's earnings inconsistencies are a consequence of its exposure to more vulnerable small and medium sized businesses. However, Paychex does offer a richer dividend yield, although this may be changing.
In the security space is Ambarella (NASDAQ: AMBA). The stock has added nearly 25% from its feature price in April. The chip developer for HD video capture has proven a favorite of buyers, with trading volume on up days nearly double (well, up 80%) that of down days since the start of May. First-quarter results had beat estimates with a 31% rise in revenue, and Q2 revenue estimates were increased from $34.7 million to $37.5 million, or a forecast for up to a 34% growth over the comparable quarter last year. The security camera business is unlikely to slow in the foreseeable future, so prospects remain strong, and the consumer camera market saw "significant growth." The camera market accounted for 86% of Ambarella's Q1 revenue. Better still, the falling price of 4K capable television displays (one rumored for $699 by the fall) will help fuel sales of cameras supporting Ambarella's Ultra HD resolution chips. However, the company was not expecting a significant revenue this year from 4K resolution video (in the security camera space).
Associated Banc-Corp (NASDAQ: ASBC), from the October 2012 feature, managed to deliver on its early promise and pushed a new multi-year high. This brought with it an injection of volume buying. Earnings are due on July 18, but for the last quarter the bank earned $0.27 per share, up 12.5% from the comparable quarter last year. Deposits were also up 3% to $17.4 billion. Non-interest income was up $4 million to $82 million for the quarter, driven by its mortgage banking. However, there was implicit mention of a slowdown in loan growth near quarter end, although it wasn't expected to impinge on guidance given for the upcoming quarter. At a big picture level, a rise in mortgage business is good news for consumer confidence (and employment figures) as it suggests a rise in the long term employed. Finally, its once-troubled loan business continues to improve fall: the amount of bad loans is now at $341 million from $361 million the previous quarter (and $699 million from the prior year).
Friday's job figures will leave traders edgy, and likely edging on caution with the announcement buffered by the July 4th holiday and the weekend. There is probably more room for a "disappointment" in the figures: Paychex's weaker earnings would be bad news for those looking for an improvement in these figures. However, Associated Banc Corps' increased mortgage business does point to a rise in long term hires, confirming the general fall in unemployment.
Irrespective of the employment figure, Automatic Data Processing, Ambarella and Associate Banc-Corp are trading at, or close to, new multi-year highs. All three stocks have been relatively immune to the broader sell-off from May's highs, and all three have seen stronger volume on up days over down ones; important characteristics for market leaders. Look for this strength to continue.
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Declan Fallon has no position in any stocks mentioned. The Motley Fool recommends Automatic Data Processing and Paychex. 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!