Mr. McVeigh: I cover the business and computer services sector, which is a diverse group that includes several subsectors: staffing, which is primarily employment services stocks and correctional facilities; computer services consists of companies such as Alliance Data Systems, MasterCard, Visa ; and then traditional business process outsourcing space, which includes Convergys, Sykes and TeleTech.
TWST: As far as staffing and outsourcing, which is the focus for this report, what is your big-picture outlook for the space right now and why?
Mr. McVeigh: I continue to be very positive on the staffing sector and the outsourcing space, especially the staffing sector, as we continue to believe that the market is not properly valuing the fundamental as well as the secular growth opportunities. I think the near-term cross currents that we're experiencing in Europe around the sovereign debt issues are really masking a lot of very good fundamental growth in the U.S.
When you layer in how quickly temporary help is growing as a percentage of total nonfarm payrolls, I think it bodes well for a much greater market opportunity, and that's being seen in what I characterize as the penetration rate, which is defined as temporary help as a percentage of nonfarm payrolls. If you look at that overall, it is trending at about 1.8%, in a period that I would characterize as early to midcycle, versus the prior two peaks of about 2%. So what that's telling us is that the market opportunity for the staffing sector overall is likely much greater in this up cycle than it is currently. That additional opportunity is being masked by all the uncertainty that we're experiencing in Europe.
Tickers included in this excerpt: ADEN.VX, ADS, CVG, KFRC, LPS, MA, MAN, RAND.AS, RECN, RHI, SYKE, TTEC, V
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