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Does Jobs Data Have a Silver Lining? 5 Stocks to Consider

Swarup Gupta

With job additions disappointing, March’s jobs report appears to be particularly dismal at first glance. But a more nuanced look at the data reveals that the situation is not as bad as it seems. In fact, a significant fall in unemployment and steady wage gains indicates that the labor market remains healthy.

This could provide investors with respite, given that expectations that the new administration will act to boost employment continue to persist. At present, professional and financial services, mining and healthcare are at the forefront of job gains. This is why adding stocks from these areas to your portfolio makes for a prudent option.

Job Additions Plummet, Weather to Blame

At 98,000, March’s job additions are the lowest experienced since May last year. The figure may seem to be particularly worrying given February and January’s job additions stand at 219,000 and 216,000, respectively. Additionally, these gains were revised downward by 38,000 as a whole.

However, most of the decline could be attributable to sudden changes in the weather. A major storm developed in the North East during the week when the survey took place. Also, the East Coast witnessed colder weather in March after two warm months.

This likely explains the sudden hiring slowdown for retail and construction sectors. In March, construction added only 6,000 jobs, after experiencing an increase of 59,000 in February.

Meanwhile, the retail trade witnessed 30,000 job losses with employment at general merchandise stores experiencing a decline of 35,000.  However, a lion’s share of this decline is attributable to a decline in brick and mortar stores as the popularity of online retail grows.

Key Unemployment Indexes Fall, Wage Growth Firm

Hidden behind the more visible payrolls number is a significant fall in unemployment. The jobless rate declined from 4.7% to 4.5%, its lowest on record in the last 10 years. Additionally, the labor force participation rate for March held steady at 63.0%.

Coming to even broader measures of unemployment, the U5 rate, which takes into account discouraged workers and people only sporadically looking for jobs, declined to 5.4%. This is the lowest level witnessed since May 2007. The absolute number of discouraged workers declined to 460,000, the second lowest experienced since Aug 2008.

Moreover, the U6 unemployment rate, that includes people forced into part-time work, declined to 8.9%, the lowest level experienced since Dec 2007.  Meanwhile, wage gains remained steady with average hourly earnings increasing by 2.7% on a year over year basis. This increase remains slightly above the average level witnessed since the beginning of last year.

Our Choices

Despite the significantly low number of job additions witnessed last month, there is enough evidence to show that the labor market is in good shape. This borne out by the ADP report released earlier in the week as well as data on unemployment and wage increases featured in Friday’s report itself.

Picking stocks from professional and financial services as well as mining and healthcare seems to be a smart option at this point, since they continue to be leading job additions. However, picking winning stocks may 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. 

We have narrowed down our search to the following stocks based on a good Zacks Rank and VGM score.

SP Plus Corporation SP provides professional parking, ground transportation, facility maintenance, security and event logistics services to property owners and managers.

SP Plus has a Zacks Rank #1 (Strong Buy) and a VGM Score of A. The company has expected earnings growth of 18.9% for the current year. The forward price-to-earnings (P/E) ratio for the current financial year (F1) is 20.89, lower than the industry average of 21.59. The stock has returned 16.3% year-to-date outperforming the Zacks Consumer Services - Miscellaneous Market sector, which has gained 4.4% over the same period.

BGC Partners, Inc. BGCP is a leading global full-service inter-dealer broker, specializing in the trading of financial instruments and related derivatives products.

BGC Partners has a Zacks Rank #1 and a VGM Score of A. The company has expected earnings growth of 19.1% for the current year. Its earnings estimate for the current year has improved by 5.3% over the last 30 days. The stock has returned 7.7% year-to-date, outperforming the Zacks Financial - Investment Bank Market sector, which has lost 4.4% over the same period.

Dycom Industries Inc. DY provides diverse services such as engineering, construction, maintenance and installation services for the cable and telephone companies.

Dycom has a VGM Score of B. The company has expected earnings growth of 22.3% for the current year. Its earnings estimate for the current year has improved by 6.2% over the last 60 days. The stock has returned 17.8% year-to-date, outperforming the Zacks Building Products - Heavy Construction Market sector, which has gained 0.9% over the same period. The stock has a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

HCA Holdings, Inc. HCA is the largest non-governmental operator of acute care hospitals in the U.S.

HCA Holdings has a Zacks Rank #2 (Buy) and a VGM Score of A. The company has expected earnings growth of 8% for the current year. Its earnings estimate for the current year has improved by 0.2% over the last 30 days. The stock has returned 18.7% year-to-date, outperforming the Zacks Medical - Hospital Market sector, which has gained 17.9% over the same period.

Klondex Mines Ltd. KLDX is focused on exploration, development and production of mineral properties. It primarily explores for gold and silver properties in Nevada.

Klondex Mines has a Zacks Rank #2 and a VGM Score of B. The company has expected earnings growth of more than 100% for the current year. Its earnings estimate for the current year has improved by 22.2% over the last 30 days.

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