The primary argument for a labor market rebound is that the recession of 2023 hasn’t emerged as planned. In typical fashion, many economists and market analysts are simply kicking the can down the road and calling for a recession sometime in 2024. Like a broken clock, they may be right.
Who knows? Right now, the facts are in favor of an improbable soft landing. Of course, the rate of inflation is still going up, retailers are saying the consumers are tightening their belts, and corporations are lowering their earnings guidance. In other words, things could get worse.
But what if they don’t? If inflation continues to cool and the Federal Reserve does hold interest rates at their current level (and maybe cut rates at some point in 2024), it would be bullish for the labor market. The current unemployment rate of 3.9% is already significantly higher than the projection of the Congressional Budget Office from February 2023.
However, this is a different market than in 2021. At that time, the labor market rebound was spurred by the Great Resignation. This time, the market looks more like it was in 2019. That means businesses will likely become more selective in their choices. Here are three stocks to help play this market.
Korn Ferry (KFY)
Korn Ferry (NYSE:KFY) is a management consulting firm that specializes in executive search and consulting across a range of industries. The company’s revenue and earnings have been lower on year-over-year (YOY) basis for several quarters. That’s reflected in the KFY stock price which is down 7% in the last 12 months and nearly 40% from its all-time high in November 2021.
Normally, it’s useful to widen your view of a stock. In this case, it may help to narrow your timeframe. In the last six months, KFY stock is up more than 5% and over 13% in the last six months. That suggests that employers are becoming more intentional about filling their open positions.
Only five analysts have issued a rating on Korn Ferry in the last 12 months. However, three of those analysts give the stock a buy or strong buy rating. That includes a price target of $57.50 which would be more than a 12% gain to go along with a dividend that currently offers a 1.41% yield.
Heidrick & Struggles International (HSII)
Heidrick & Struggles International (NASDAQ:HSII) is another prominent name in the executive search world. However, the company is enthusiastically branching out into other areas to diversify its revenue base.
For example, in-demand-talent like freelancers and independent contractors now accounts for approximately 25% of the company’s revenue. Also, Heidrick & Struggles has launched an AI-powered platform, Navigator, that provides “unbiased insights” on a company’s current leadership.
One highlight from the company’s third quarter earnings report in October 2023 is the company delivered stronger revenue on a YOY basis. This broke a trend of lower YOY revenue that had been in place for several quarters. The same can’t be said for earnings, which remain lagging on a YOY basis.
HSII stock isn’t widely covered by analysts. However, two out of the three analysts that have issued a rating give the stock a strong buy rating with a price target of $36, which would be a 33% gain from the stock’s current level.
The stock is attractively valued at just 10x forward earnings. Plus, investors even get a small dividend that currently yields 2.2% and pays 60 cents per share on an annual basis.
Kelly Services (KELYA)
Kelly Services (NASDAQ:KELYA) operates at the other end of the employment spectrum for a labor market rebound. This is a company that provides temporary workers of the entry-level variety.
Kelly Services may seem like an odd choice. Employment agencies tend to do better when interest rates are rising and the job market is tight. Right now, interest rates may have topped out, and you keep hearing that jobs are plentiful.
However, and it’s only anecdotal information for the moment, but it seems that may be an overstatement. Employers appear to be becoming more discerning because even at the entry level, the right hire matters. If this becomes a full-on trend as my InvestorPlace colleague Josh Enomoto suggests it might, Kelly Services would stand to be a beneficiary.
But here’s the thing about anecdotal information. Lower corporate guidance was anecdotal until this quarter when it wasn’t. Once we get past the seasonal hiring period, it will be intriguing to see how plentiful the jobs are.
Fundamentally, the stock trades at around 11x forward earnings and analysts have a $26.67 price target for the stock, which is a 28.5% increase from its price as of this writing.
On the date of publication, Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
