Staffing Stocks Gain Despite Uptick in Jobless Claims
Staffing stocks outpaced the broader market Thursday despite data from the Labor Department revealing that weekly jobless claims unexpectedly rose to 861,000 from 773,000 in the previous week, snapping a nearly month-long streak of declining numbers.
- Staffing stocks rose Thursday as investors looked toward ongoing stimulus measures and easing business restrictions to revive the jobs market.
- Automatic Data Processing, Inc. (ADP) shares broke out from a monthly symmetrical triangle Thursday in a move that may act as a catalyst for a retest of the all-time high.
- Paychex, Inc. (PAYX) shares also broke out above a symmetrical triangle, increasing the chances of follow-through buying in subsequent trading sessions.
Although the job market struggles to regain traction, employers continue to hire at a faster pace than January, with gradual improvements expected in coming months amid ongoing stimulus measures, eased business restrictions, and the lifting of stay-at-home orders across parts of the country. As part of a $1.9 trillion government relief package under consideration in Congress, lawmakers have put forward a proposal to extend jobless benefits currently scheduled to expire in mid-March.
Below, we take a closer look at two leading staffing stocks well positioned to benefit from a recovery in job growth. We'll also employ technical analysis to outline possible trading opportunities.
Automatic Data Processing, Inc. (ADP)
Automatic Data Processing offers human resources administration services, such as payroll processing and benefits administration. While the New Jersey-based company reported flat fiscal second quarter earnings of $1.52 per share, the figure came in comfortably above the consensus mark of $1.29 per share. The bottom line received a boost from the firm's Professional Employer Organization (PEO) services division that saw a 5% increase in revenues from a year earlier. As of Feb. 19, 2021, Automatic Data Processing stock has a market capitalization of $73.86 billion and trades around 7% higher over the past month. Investors also receive a 2.23% dividend yield.
A cross of the 50-day simple moving average (SMA) back above the 200-day SMA in November – known as a golden cross – indicates the stock has resumed its multi-year uptrend. More recently, the share price broke out from a monthly symmetrical triangle Thursday in a move that may act as a catalyst for a retest of the all-time high at $182.32. Active traders who buy at these levels should guard against a failed breakout with a stop-loss order positioned below the triangle pattern's top trendline.
A symmetrical triangle is a chart pattern characterized by two converging trendlines connecting a series of sequential peaks and troughs. These trendlines should be converging at a roughly equal slope.
Paychex, Inc. (PAYX)
With a market cap upwards of $30 billion, Paychex provides payroll outsourcing to small and midsize businesses. The company, which services around 600,000 clients, posted a fiscal second quarter profit of 73 cents per share on revenues of $983.7 million. Both figures came in ahead of Wall Street expectations, with the bottom line growing 4.3% on a year-over-year basis. The firm's management solutions segment continued to perform well thanks to high demand among its existing customer base for HR outsourcing, time and attendance, and retirement services. Paychex stock issues a 2.78% dividend yield and has gained 3.29% over the past month as of Feb. 19, 2021.
Like ADP, the Paychex share price broke out above a symmetrical triangle Thursday, increasing the chances of follow-through buying in subsequent trading sessions. Those who enter here should consider using the measured move technique to set a profit target. To do this, calculate the maximum distance of the triangle's width in dollars and add that amount to the pattern's top trendline. For instance, add $16 to $90 for a target of $106. Protect capital with a stop placed under the Feb. 12 low at $87.67.
A profit target is a predetermined point at which an investor will exit a trade in a profitable position. Profit targets are part of many trading strategies that investors and technical traders use to manage risk.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.
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