Tempting Temp Stocks
Remember the Kelly Girl, that young, smiling temp who graced reception desks in ads for Kelly Services? That outdated image is long gone, but temps are all over the office these days. The temporary-help industry is booming as companies worldwide try to cut labor costs by keeping their staffs lean. With annual industry revenues rising about 20% since 1992, temp stocks are a tempting investment.
While many of these stocks are trading near 12-month highs (table), some pros think it's not too late to buy. But you have to choose outfits with room to grow. The best strategy is to steer clear of old-line companies, such as Kelly, that offer mostly clerical or industrial temps. These workers are generally the first sacked when the economy slows. Rather, opt for concerns providing essential services--such as tech experts who can help companies upgrade computer systems to overcome year-2000 problems.
MILLENNIUM HELP. One such provider is Tampa-based Romac International, a $95 million company. In addition to crafting millennium solutions, Romac temps design databases and develop software. In the past six months, Romac's stock has about doubled to 19 1/4. But analyst Brian Kearns at Smith Barney thinks Romac's growth rate and high-end services will fuel further share-price appreciation.
Wall Street has rewarded some fast-growth staffing companies for their aggressive acquisitions. Take AccuStaff, a five-year-old Jacksonville (Fla.) company that has bought 73 rivals. Since its first public offering in 1994, at 10 1/2, AccuStaff stock has split twice, and management has floated an additional 15 million shares. It stock now trades at around 29.
Purchasing high-flying specialty temp firms can be risky, says John Wakeman, manager of the T. Rowe Price Capital Opportunity Fund. Many big temp users, such as Coca-Cola and IBM, prefer agencies that can provide one-stop shopping. So if you're worried that a specialty firm might fizzle, look instead at one of the big providers such as Norrell Services, whose temps do everything from accounting to filing. Norrell even operates phone centers for UPS, saving the shipper the expense of hiring full-time people with benefits. Such relationships have boosted Norrell's earnings per share an average of 45% annually in the past three years.
Temp providers are also busy overseas. Manpower generates two-thirds of its revenues abroad, mostly in Britain and France. That exposes it--and investors--to currency risks. In October, Manpower linked an announcement of flat earnings to currency fluctuations. Its stock price had already tumbled more than 20% since early August. But no one doubts that over the long haul, companies abroad will be every bit as willing to take on temps as their American counterparts. Lisa Sanders