US Unemployment Slips to a 10-Year Low: Top 5 Gainers
Tirthankar Chakraborty
Updated
The S&P 500 and the Nasdaq closed at record highs following an upbeat jobs report. While the unemployment rate fell to the lowest level in 10 years, employment bounced back in April. This provided the assurance that the broader economy is poised for a strong spring after a lackluster start to the year.
Job additions were broad-based last month, with leisure and hospitality, education and health services as well as professional and business services remaining at the forefront, exceeding Wall Street’s expectations. This is why adding stocks from these areas seem judicious at the moment.
Unemployment Tanks to Lowest in a Decade
The unemployment rate dipped to its lowest level in April since 2007, supporting the Fed’s view that the economy’s sluggish first quarter was just a blip. The headline jobless rate – which measures people who aren’t able to find a job – came in at 4.4%, the lowest since the Great Recession had set in. If the rate declines further, it will match a 16-year low.
Broader measure of unemployment and underemployment also continue to show signs of strength. The U6 unemployment rate that includes people forced into part-time work and people only sporadically looking for jobs, fell to 8.6% in the month, the lowest level since 2007.
The U5 unemployment rate, a measure that the Trump administration sees as a good benchmark and one that includes marginally attached workers but leaves out part-time workers, fell to 5.3%, the lowest in a decade. In another good sign, the employment-to-population ratio gained steadily as well and is now at 60.2%. It has now been above the 60% level for three months in a row.
Pace of Hiring Picks Up
With job openings almost at record highs, an increasing number of Americans are finding a way back into the labor market. The pace of hiring picked up again in April, with some 211,000 people finding new jobs. Hiring rebounded last month after a slow start this year, offering fresh evidence that the economy is still growing at a healthy clip. The report comes a month after a dismal March that saw payrolls grow by just 79,000, a number that was revised lower from 98,000.
In the first four months of this year, the economy has added an average of 185,000 jobs a month. The economy, moreover, has posted 79 straight months of job gains, healing much of the damage inflicted by the recession.
Job gains were seen in mining and manufacturing, sectors that are relatively small but are being closely watched due to Trump administration’s vow to boost employment in such industries. Trump’s promises, including a job-boosting tax or infrastructure program, are likely to reverse a decade-long decline in factory jobs. The U.S. has lost more than five million manufacturing jobs since 2000, mostly due to lower wages, automation and foreign competition. Many companies look at trimming their employment costs by moving jobs to places were workers are paid a lot less than in the U.S. (read more: 3 Top Staffing Stocks to Buy on Trump's Job Pledge).
But, the bulk of job growth came from the much larger sectors of leisure and hospitality, education and health, and business services. The following table shows the number of job additions by selected industries last month:
Selected Industries
Job Additions (In Thousands)
Leisure and hospitality
55
Education and health services
41
Professional and business services
39
Financial activities
19
Government
17
Mining/logging
10
Wholesale trade
8.2
Retail trade
6.3
Manufacturing
6
Construction
5
Transportation and warehousing
3.5
Utilities
0.7
Information
-7
Source: Bureau of Labor Statistics
5 Solid Winners
With the U.S. job market rebounding strongly last month and the unemployment rate falling to the lowest in a decade, there is enough evidence that the labor market is in the pink. Hourly pay has also risen 0.3% in April to $26.19 an hour. In the past 12 months, hourly wages scaled 2.5%, a sharp pickup from less than 2% a few years ago.
Picking stocks from leisure and hospitality, education and health services as well as professional and business services seems to be a smart option at this point, since they continue to be leading in job addition. Employment in other major industries, including construction, manufacturing, wholesale trade, retail trade, transportation and warehousing, government, and information, showed little change over the month.
However, picking the 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.
Live Nation Entertainment, Inc. LYV is a live entertainment company. The company's businesses consist of the promotion of live events, including ticketing, sponsorship and advertising. Live Nation Entertainment has a Zacks Rank #1 (Strong Buy) and a VGM score of ‘A’.
The company is likely to give a return of 182.6% this year, way more than the Leisure and Recreation Services industry’s projected gain of 19.7%. The company has outperformed the broader industry on a year-to-date basis (+30.1% vs +18.7%)
Malibu Boats Inc MBUU is a designer, manufacturer and marketer of performance sport boats. The company has a Zacks Rank #2 (Buy) and a VGM score of ‘A’.
Malibu Boats is likely to give a return of 17.1% this year, higher than the Leisure and Recreation Products industry’s estimated gain of 11.7%. The company has outperformed the broader industry on a year-to-date basis (+23.3% vs -2.1%)
Hilton Grand Vacations Inc HGV is a timeshare company that markets and sells vacation ownership intervals (VOIs), manages resorts in leisure and urban destinations, and operates a points-based vacation club. Hilton Grand Vacations has a Zacks Rank #2 and a VGM score of ‘B’.
The company is likely to give a return of 10.8% this year, higher than the Hotels and Motels industry’s projected gain of 2.8%. The company has outperformed the broader industry on a year-to-date basis (+39.3% vs -1.5%)
UnitedHealth Group Inc UNH is a health and well-being company. The company operates through four segments: UnitedHealthcare, OptumHealth, OptumInsight and OptumRx. UnitedHealth Group has a Zacks Rank #2 and a VGM score of ‘A’. You can see the complete list of today’s Zacks #1 Rank stocks here.
The company is likely to give a return of 21.7% this year, more than the Medical - HMOs industry’s estimated gain of 8.8%. This provider of health benefits and services has yielded a solid year-to-date return of 8.8%.
WNS (Holdings) Limited WNS is a provider of business process management (BPM) services across the globe, including the US. The company has a Zacks Rank #2 and a VGM score of ‘B’.
The company is likely to give a return of 11.7% this year, more than the Business - Services industry’s projected gain of 4.4%. The company has outperformed the broader industry on a year-to-date basis (+16.6% vs -3.7%)
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