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American Labor Market Hale and Hearty: Top 5 Winners

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The labor market is in excellent shape, with unemployment hitting the lowest level in September since the Vietnam War. Though jobs addition slowed down nominally last month due to Hurricane Florence, it is expected to pick up for sure. Let us, thus, take a look at stocks that made the most of the robust labor market.

Unemployment at 49-Year Low

The U.S. unemployment rate fell to a 49-year low of 3.7% in September, the lowest since December 1969, per the Labor Department. However, the month saw the minimum increase in hiring in the last 12 months due to a one-off factor. Hurricane Florence may have affected job numbers, with leisure and hospitality employment slightly down.

Meanwhile, the estimate for hiring in July and August were revised upward by 87,000 jobs. This boosted the monthly average job additions to a healthy 211,400 in the past year.

 

Staffing Stocks to Make the Most of Robust Jobs Market

The job additions bode well for staffing companies. Additionally, the Conference Board’s Employment Trends Index was 110.88 in August, up from the downwardly revised 109.58 in July. When compared to the year-ago level, the index shows a jump of 6.9%.

Gad Levanon, North American added that “the Employment Trends Index continues to accelerate and this supports our projections for strong economic growth in the coming year, suggesting that demand for labor is likely to remain strong.”

White-Collar Firms Lead the Way

By and large, the jobs report showed that most industries added jobs. Construction firms boosted payrolls by 23,000 and manufactures took on 18,000 workers.

However, it was professional and business services which led the way with 54,000 job additions. The hiring spree indicated that white-collar firms are in an expansion mode and their businesses are churning out huge profits.

Strong Jobs Market Points to Higher Interest Rates

The jobs report shows a 0.3% rise in hourly pay to $27.24 last month. Wage growth dropped to 2.8% from 2.9% in the past 12 months but is widely expected to top the 3% mark in the near term on rising competition for a shrinking pool of qualified workers.

Higher pay means that the cost of borrowing for both consumers and businesses is going to go up soon. Higher inflation, in turn, may lead to increased interest rates. The Fed has already lifted its short-term benchmark interest rates for the third time this year to 2%-2.25%.

A rising rate environment is a boon for institutions such as banks and insurance houses. Higher interest mean more bank profits as they increase the spread between what banks earn by funding longer-term assets, such as loans, with shorter-term liabilities.

Rising rates act as a boon for insurance companies as they derive their investment income from investing premiums, which are received from policyholders in corporate and government bonds. Yields and coupons on these bonds rise in response to a hike in Fed fund rates and bank interest rates. This enables life insurers to invest their premiums at higher yields and earn more.

 

Top 5 Winners

From recruiters and white-collar firms to financials, all stand to gain from a solid labor market. Investing in such stocks seems the right thing to do now. We have picked five such stocks that flaunt a Zacks Rank #1 (Strong Buy) or 2 (Buy).

Korn/Ferry International (KFY - Free Report) provides talent management solutions. The stock currently has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings increased 2.5% in the last 60 days. The company’s expected earnings growth for the current quarter and year are 19.4% and 21.3%, respectively.

General Finance Corporation (GFN - Free Report) is a specialty rental services company. The stock currently has a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings soared 91.7% in the last 60 days. The company’s expected earnings growth for the current quarter and year are a respective 75% and 283.3%.

Vertex Energy, Inc. (VTNR - Free Report) is an environmental services company. The stock currently has a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings rose 18% in the last 60 days. The company’s expected earnings growth for the current and next quarter is 91.7% and 75%, respectively. You can see the complete list of today’s Zacks #1 Rank stocks here.

First Bancorp (FBNC - Free Report) operates as the bank holding company for First Bank. The stock currently has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings increased 1.3% in the last 60 days period. The company’s expected earnings growth for the current quarter and year are 41.5% and 63.2%, respectively.

Berkshire Hathaway Inc. (BRK.B - Free Report) provides property and casualty insurance. The stock currently has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings rose 8.8% in the last 60 days. The company’s expected earnings growth for the current quarter and year are a respective 76.4% and 68.9%.

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