5 Stocks To Buy As Jobless Rate Hits 16-Year Low

Job additions declined sharply in May, coming in well below expectations created by economists and last week’s ADP data. Private payrolls surged by 253,000 last month according to ADP, well above most estimates. But the fall depicted by official figures has given rise to an impression that the jobs market may be cooling down.

Far from it, several economists believe that the U.S. is now close to full employment. A shrinking labor market is making it difficult for companies across some sectors to attract and retain their workforce. But job additions are continuing in other professions, which make it a good idea to invest in stocks from those sectors.

Gauges of Joblessness Plunge

Most analysts and market watchers had expected significant job additions in May following the release of bullish ADP data. However, official data revealed that only 138,000 job additions had taken place last month, much lower than the consensus estimate of 184,000. Additionally, April’s figures were revised downward from 211,000 to 174,000 while March’s job additions declined from 79,000 to 50,000.

But there was a lot to digest beyond the 66,000 jobs lost due to downward revisions. For one, the unemployment rate declined from 4.4% to 4.3% in May, marking its lowest level since 2001. Since January, the unemployment rate has experienced a decrease of 0.5%.

Also, the unemployment rate for individuals without employment for a period lower than six months declined to a 47-year low of 3.3%. The "U-6," considered to be a broader measure of unemployment, since it includes those workers who are working part-time for purely economic reasons, declined to 8.4%. This marks its lowest level since mid-2007.

Select Sectors Continue to Notch up Gains

Despite the decline in job additions for May, several economists believe that the situation is not as bad as it seems at first glance. With full employment within grasp, the economy may need to add only 100,000 jobs on a regular basis to maintain growth levels.

Though job additions have slowed in January, the labor market as a whole hasn't been better in a decade or more. More importantly, the economy shows no signs of stalling. In fact, the current expansionary phase has stretched over 96 months and is third longest of all-time since World War II.

And specific sectors continue to notch up job additions. In May, professional and business services led the way by adding 38,000 jobs whereas food services and drinking places added 30,000 jobs. The healthcare sector experienced 24,000 job additions, whereas mining added another 7,000 jobs.

Labor Market Shrinks on Multiple Factors

What is difficult to ignore is the reality of an ever shrinking labor market. With the economy nearing full employment, companies are finding it increasingly difficult to attract and retain the workforce they need. Some of them, particularly in areas which require skilled labor such as construction, have resorted to raising overtime hours.

Other factors such an ageing baby boomer generation and tighter immigration rules are also diminishing the workforce. Most economists agree that such trends will ultimately lead to a significant spike in wage growth which still remains relatively sluggish.

Our Choices

May’s lower job additions notwithstanding, the labor market remains in good shape. A shrinking workforce and near full employment conditions are primarily responsible for the fall in jobs added last month.

However, select sectors continue to notch up steady job gains. This is why it makes for a smart option to invest in stocks from these areas. We have narrowed down our search to the following stocks based on a good Zacks Rank and other relevant metrics.

Gartner, Inc. (NYSE:IT) is a research and advisory firm that helps clients understand technology and drive business growth.

Gartner has a Zacks Rank #1 (Strong Buy). Its expected earnings growth for the current year is 15.9%. Its earnings estimate for the current year has improved by 6.7% over the last 30 days. The stock has returned 19.6% year to date, outperforming the Zacks Consulting Services sector, which has gained 6.3% over the same period.

NV5 Global, Inc. (NASDAQ:NVEE) offers professional, technical consulting and certification solutions for public and private sector.

NV5 Global has a Zacks Rank #1. Its expected earnings growth for the current year is 43.1%. Its earnings estimate for the current year has improved by 3.8% over the last 30 days. The stock has returned 10% year to date, outperforming the Zacks Consulting Services sector, which has gained 6.3% over the same period.

LHC Group, Inc. (NASDAQ:LHCG) provides post-acute healthcare services primarily to Medicare beneficiaries in rural markets in southern U.S.

LHC Group has expected earnings growth of 10.3% for the current year. Its earnings estimate for the current year has improved by 5.5% over the last 60 days. The stock has returned 33.8% year to date, easily outperforming the Zacks Medical - Outpatient And Home Healthcare sector, which has gained 6.5% 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.

Uranium Resources, Inc. (NASDAQ:URRE) acquires, explores and develops properties for the mining of energy metals.

Uranium Resources has a Zacks Rank #2 (Buy). The company has expected earnings growth of 88.5% for the current year. Its earnings estimate for the current year has improved by 37.3% over the last 30 days. The stock has returned 11% year to date, outperforming the Zacks Mining - Miscellaneous sector, which has lost 0.7% over the same period.

Darden Restaurants, Inc. (NYSE:DRI) is one of the largest casual dining restaurant operators worldwide.

Darden Restaurants has a Zacks Rank #2. Its expected earnings growth for the current year is 9.1%. Its earnings estimate for the current year has improved by 0.4% over the last 30 days. The stock has returned 25.6% year to date, outperforming the Zacks Retail - Restaurants sector, which has gained 15.1% over the same period.

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