Obama, and the Skilled Labor Super Bull
Adem is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
With the State of the Union officially in our "rear view," many political jabs will be firing from both sides of the aisle.
I have no political diatribe forthcoming--I just want you to make money.
But taking an objective look at political policy that is "sensitive" and complex like "Obamacare," can sometimes point the average investor to opportunities the market is just too emotional to capitalize on. It’s like Jim Cramer always says: “there’s always a bull market somewhere,” I like that; it’s a reminder that every policy creates investment winners and losers.
Obamacare creates a hidden bull market
For the past four years, labor market trends have encouraged droves of disengaged workers to stay in positions they despise.
But that “glacier” of employment uncertainty is thawing. In fact in 2012 41% of employers (up 7% since 2010) reported an inability to fill open positions.
At the same time, 30% of workers say they'd retire early (up 9% since 2010) if they didn’t need benefits.
So what happens when the Affordable Care Act (Obamacare) goes full throttle in 2014? I’d bet that more people will be quitting or retiring; and there’s a bull market beneath it all.
Remember, prior to the “great recession” some estimates predicted a skilled labor decrease of up to 50% in the workforce. The reason for the shortage is due to “baby boomer” retirements and a general decline in trained workforces.
The truth is that we’re at the dawn of a skilled labor shortage and Obamacare is set to create a hidden “Super Bull” in this space.
Winners of the "Skilled Labor Super Bull"
Workday (NYSE: WDAY)
This company launched its IPO just last month and is not currently making a profit, but it’s very interesting as a “speculative play.” Workday provides a single point “software as a service” platform that allows employers to manage everything from recruitment outsourcing services to income statements.
Even better, Workday allows you to optimize your workforce.
You can determine how well a top employee is paid vs. their “market comparison;” all on your iPad, all on the cloud. Or, you can examine the revenue generated per employee for a specific business line and assign and re-structure your headcount for that business line. While the company won’t earn a profit for at least a year, it’s on the right side of this trend and with a market cap of just around $8B, it could be a great acquisition play as well.
Korn/Ferry International (NYSE: KFY)
Simply put, Korn/Ferry is to “skilled talent search” what McDonalds is to hamburgers. In a sector that is fragmented by hundreds of small players, they are the only global “direct hire” search firm. Until lately, direct hire was all Korn/Ferry did but now they dabble in some complimentary employee performance consulting services as well.
Let’s see if you can spot the trend that binds Korn/Ferry’s business lines:
Direct hire search: Skilled headhunters “cold call” executive level talent in competitive fields like finance, technology and advertising. These exec’s typically are gainfully employed and in demand, yet you only pay Korn/Ferry if you make a hire (the fee is substantial.)
Employee effectiveness/development consulting: Korn/Ferry uses industry specific data and expertise to help XYZ employer determine how effective their staff is and determines what will improve performance. Think, “The Bob’s” from the movie Office Space.
Do you know what the “investor friendly” link is? I’ll tell you!
These services have cost Korn/Ferry $0 in overhead! The only real overhead Korn/Ferry has are its employees and buildings, which provides much needed flexibility to maneuver through recessions. Despite the uptick in unemployment the company has remained profitable through each of the past five years.
Korn/Ferry has the best talent when it comes to finding the best talent and a prestigious brand name; they’re well positioned to exploit this bull.
Dice vs. LinkedIn
Everybody loves LinkedIn (NYSE: LNKD), including me. I even wrote a post explaining how enthusiastic I was over the companies 90% (yoy) rise in recruiting revenues. To be sure, with surging recruiting revenues and plenty of ways to monetize “recruiting revenue” more effectively, LinkedIn is a huge skilled labor play.
But that enthusiasm comes with a price, the company sports a forward P/E of 79.31.
A far cheaper, yet just as bullish play is Dice Holdings (NYSE: DHX). This little known company is truly a recruiter’s best friend, as its products (specialized career websites, career fairs, etc.) make the “impossible hire,” possible.
Dice has found niches inside of niches and exploited them with strong brand recognition amongst hiring authorities. For instance, Dice owns a job board (like Monster.com, etc.) called Rigzone that only has candidates who are Petroleum Engineers on it.
How hard is it to recruit Petroleum Engineers? They currently have an unemployment rate of less than 1%. Yet through Rigzone and its Oil & Gas career fairs (which cost 2-5k for recruiters to attend), Dice delivers.
Yet despite surging EPS (20% yoy) and a fat return on equity (19%) the stock stays largely range bound; it surges on earnings beats and then retreats to the $9/share range.
With strong respective positions in online/social recruiting, you could buy Dice or LinkedIn. Or, buy both and hope that LinkedIn buys Dice as well.
7% unemployment=a skilled labor shortage. Yeah...I said it
It’s funny how investors always want to follow the “smart money," yet they still plan to beat the market.
Say this much, if the skilled labor “Super Bull” comes to fruition I'll definitely be one of the first to the party.
Adem Tahiri has no position in any stocks mentioned, at www.commontulip.com you can view all his posts and holdings. 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!