Listen to this post
That’s an encouraging conclusion – one that should be bolstered on Aug. 5, when the U.S. Bureau of Labor Statistics releases the job numbers for July. Our early take: Job growth should still be robust – despite those inflationary headwinds and recessionary worries.
Under the hail of today’s 24/7 news cycle, compounded by the fog of “everybody’s-an-expert” social-media posts, these job numbers are the kind of routine update that’s easy to gloss over.
For us, however, these reports are yet another “breadcrumb” – the kind of clue that can help you avoid losses or spotlight the next big opportunity.
It’s the latter – the opportunities – we’ll focus on for you today.
If you’re one of those folks who have recently surfed the hot job market and made that important career move, the administrative “onboarding” process is probably fresh in your mind. There’s the meet-and-greet with the human resources department, the benefits briefings, and the talk about health insurance, disability offerings, and your 401(k).
And once you’re ensconced in that hot new job, all those nifty benefits have to be maintained. That’s the behind-the-scenes work we tend to forget about – but it’s essential for any company that wants to run like a fine Swiss watch.
For a human resources department to do all that for one employee, it’s time intensive. And expensive – not a small factor in these cost-conscious times.
Now, imagine doing that for a business with hundreds of employees… or even thousands.
That’s where automation comes in.
There are outside firms that do this work for lots of companies – achieving the economies of scale that make the whole payroll-and-benefits-administration gambit efficient and cheap.
Two firms stand out here. And in the long run, they win no matter what happens.
If job growth continues to accelerate across the American economy, these two companies will stay busy. And if the economy slows and companies put a tighter squeeze on costs, they’ll benefit as still more employers outsource these benefit services to keep from having to do the work in-house.
Making Big Bucks from Boring Payroll Tasks – Stock No. 1: ADPAutomatic Data Processing Inc. (ADP) serves over 920,000 clients and works with businesses of all sizes, ranging from companies with one employee to companies with 1,000 or more.
ADP dives into the nitty-gritty of what can make companies more efficient, offering services like:
- Time and Attendance Tracking – ADP says it can save an average of 40 minutes per week per manager with timecard approvals, automated alerts, scheduling exception reports, and more.
- Screening – ADP performs millions of pre-employment screens in more than 170 countries each year, helping to manage risk and reduce the time it takes to hire someone.
- Wage Payments – ADP can serve as a company’s single source for handling payroll options such as direct deposit, paper checks, and paycards.
Even with revenue of $15 billion in 2021, ADP has just a 10% share of the market, which leaves plenty of market share still to capture.
But this isn’t a tech stock trying to increase revenue at all costs; it has 47 consecutive years of dividend increases.
Making Big Bucks from Boring Payroll Tasks – Stock No. 2: PAYXOffering similar services to ADP is Paychex Inc. (PAYX), which serves more than 730,000 businesses.
On the surface, the biggest differences are the sizes of the companies, stock prices, and dividend yields.
- ADP market cap: $99.3 billion – PAYX market cap: $45.87 billion
- ADP stock price: $240.11 – PAYX stock price: $127.24
- ADP dividend yield: 1.73% – PAYX dividend yield: 2.46%
Which company you find to be a better investment comes down to who you are as an investor and what you value in a company. ADP is a larger company that services more customers and generated more than three times the revenue of PAYX in 2021, but it also has a smaller dividend yield and more debt than PAYX. Both companies are in our Green Zone, both have a Bullish rating, and both are considered medium risk.
Volatility Quotient (VQ) Level Breakdown:
- Up to 15% = Low Risk
- 15%-30% = Medium Risk
- 30%-50% = High Risk
- 50% and above = Sky-High Risk
Again, both of these companies stay busy even when there is a downturn in job growth, but more job creation benefits both companies.
Keep an eye out for that Aug. 5 jobs report. And remember that regardless of whether the American workforce grows or shrinks, these two companies will be supporting employers throughout the process — and they can make a pretty penny while they’re at it.