Mr. Marcon: I cover what we call "human capital solutions," otherwise known as employer services. This group includes companies that range from staffing companies to executive-search companies, to payroll and HR benefits outsourcing companies, HR consulting companies and software-as-a-service HR solutions.
TWST: Tell us about some of your largest companies.
Mr. Marcon: Sure. Within the HR outsourcing arena, some of the better-known companies are Automatic Data Processing, Paychex and Hewitt. In the staffing arena, companies such as Manpower and Robert Half and in the technology area, companies such as Taleo and Ultimate Software.
TWST: Give us your "buys," "holds" and "sells" among those.
Mr. Marcon: The staffing companies tend to be economically sensitive, and so they do fluctuate materially along with investor sentiment about what the economic outlook is going to be six to 12 months out. And currently there is considerable concern regarding the global macro outlook leading to significant multiple compression across the staffing industry, as investors have discounted a significant slowdown and partially priced in a double-dip. The multiple compression provides a potentially attractive entry point for investors with a longer-term perspective. And if a global macro slowdown is avoided, appreciation could come sooner rather than later.
One name that we like from a long-term perspective is Manpower. Manpower is the third largest staffing company in the world and the largest one based in the United States. It is benefiting from the expansion on a secular basis of the usage of flexible staff across the world. This secular trend appears to be gaining momentum for a few reasons. First, many employers are uncertain about the sustainability of the economic recovery, and they are also uncertain about future tax rates, health care costs and exchange rates. With this level of uncertainty, they want to maintain flexibility, and to match demand and production as closely as possible. Using temporary workers is one of the easiest ways for companies to maintain flexibility. In addition, with unemployment rates at generational highs, the quality of staff who are willing to work on a flexible basis is the best we have seen in decades. Finally, we are seeing in a number of countries that the legislative environment is becoming more favorable toward the usage of flexible staff.
Tickers included in this excerpt: ACN, ADP, BAC, HEW, HPQ, IBM, KFRC, MAN, PAYX, RHI, TLEO, ULTI
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