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4 Stocks to Buy on Strongest Wage Growth Since Recession

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Despite a decline in non-farm payrolls, solid growth in wages last month indicated that the U.S. labor market is on a strong footing. Moreover, upward revisions in jobs additions number for the previous two months and a decline in unemployment rate once again confirmed that the economy is improving. This again increases the chances of a December rate hike. Thus selecting stocks from sectors that are poised to gain the most from this encouraging scenario may be a good choice for investors.

7-Year High Wage Growth Pace

According to the recently released jobs data by the U.S Department of Labor, average hourly earnings increased 10 cents or 0.4% to $25.92 last month, which was preceded by an increase of 8 cents witnessed in September. The rate of growth also came higher than the consensus estimate of 0.3% increase. Also, it surged 2.8% year on year, which was the biggest rate of increase since Jul  2009.

Moreover, average hourly earnings of production and nonsupervisory employees rose 4 cents to $21.72 in October. Among the broader industries, information (5.2%), leisure & hospitality (4.6%), utilities (4.2%) and nondurable goods (4.1%) emerged as the best performers in terms of year-on-year wage growth. Strong rise in wage growth also signaled that the labor market conditions are tightening.

Upward Revisions in Jobs Number, Unemployment Rate Declines

Apart from this impressive wage growth rate, jobs additions for August and September were also revised significantly upward. The labor department increased the numbers by 9,000 and 35,000 for August and September to 176,000 and 191,000, respectively. However the report showed that the economy generated 161,000 jobs last month, lower than the consensus estimate of 173,000 and September reading. The average jobs addition over the past three months came in at 176,000 despite October’s decline.

Meanwhile, unemployment rate declined 0.1 percentage point last month to 4.9% on the back of a slight decrease in labor participation rate to 62.8%. Also, the total number of job losers and persons who completed temporary jobs dropped 218,000 to 3.7 million in October. Professional and business services, health care and financial activities emerged as the major segments to add larger proportions of jobs last month. These sectors generated 43,000, 31,000 and 14,000 jobs in October, respectively.

Sectors to Gain

Among all other sectors, consumer discretionary is poised to be the foremost gainer of the solid wage growth as consumers are expected to spend around one-third of their total expenditures on purchasing goods related to this sector. Moreover, the upcoming holiday season along with the strong growth in average hourly earnings is expected to boost the sector further.

Another industry that is also well positioned to benefit from the improving labor market scenario is staffing. Staffing is a sub-segment of the business services sector, which has been one of the leading contributors to jobs over a significant time frame. Companies from this space play an important role in providing employment services across a wide range of industries. It is speculated that continuing rise in wages will encourage more people to participate in jobs search, which in turn might boost companies from the staffing domain in the days ahead.

4 Stocks to Buy

Given this encouraging backdrop, potential stocks form the above mentioned sectors may prove to be profitable additions to one’s portfolio. However, picking winning stocks may prove to be difficult.

This is where our VGM score comes in. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select winners. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM score. 

Hence we have highlighted four stocks from the above mentioned sectors that have a Zacks Rank #1 (Strong Buy) with VGM Score of ‘B’ or better. You can see the complete list of today’s Zacks #1 Rank stocks here.

Francesca's Holdings Corp. (FRAN - Free Report) is a specialty retailer of women's apparel products. The company has a VGM Score of A. Francesca's Holdings has an expected earnings growth rate of 8.9% for the current year compared with the industry average of 7.7%. The forward price-to-earnings (P/E) ratio for the current financial year (F1) is 15.52, lower than the industry average of 15.94.

Monarch Casino & Resort Inc. (MCRI - Free Report) owns and operates the Atlantis Casino Resort Spa, a hotel/casino facility in Reno, NV; and the Monarch Casino Black Hawk in Black Hawk, CO. The company has a VGM Score of B. Monarch Casino & Resorthas an expected earnings growth rate of 14.3% for the current year compared with the industry average of 8%. The P/E ratio for the current financial year (F1) is 16.82, lower than the industry average of 20.09. Its earnings estimate for the current year has gained 7.9% over the last 30 days.   

ManpowerGroup Inc. (MAN - Free Report) is a leading non-governmental employment services organization. The company has a VGM Score of A. ManpowerGrouphas an expected earnings growth rate of 8.6% for the current year. Its earnings estimate for the current year has improved 3.8% over the last 30 days. The P/E ratio for the current financial year (F1) is 12.60, lower than the industry average of 13.37.

Cross Country Healthcare, Inc. (CCRN - Free Report) is engaged in staffing of clinical research professionals and allied healthcare professionals. The company has VGM Score of A. Cross Country Healthcare has an expected earnings growth rate of 12.5% for the current year compared with the industry average of 9.6%. Its earnings estimate for the current year has jumped 10.4% over the last 30 days.

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