Is it a good time to invest in recruitment stocks?
At their site launch, Gerry McLaughlin, founder of NamesFacesPlaces, the reunion site for contractors, stated that the slump in the market for contractors was close to its bottom. He said that it was following closely the path of the 1990/91 downturn, which was the last severe recession for the profession. Then, major agencies were trading at knockdown prices on the stock market, only to rebound within 18 months to multiples of their bottom levels. Today, agencies which are household names in the contracting profession, are trading at values of as low as one fifteenth of their annual turnover. These will look very cheap in 18 months time.
The average stock market downturn lasts 11 months. The longest one was The Great Depression which lasted 26 months. The current bear market, which started in March 2000, was 18 months old when it reached its bottom in mid-September of this year. Stock markets anticipate recovery before it actually happens, and start rising half way through a recession. A recession, normally defined as two quarters of negative growth, usually lasts 2/3 quarters. The US economy fell by 0.4% in the third quarter of this year, and is expected to fall in the current quarter too. Our markets follow theirs closely. Even if this is a severe downturn, the upturn would be expected to start towards the end of the first quarter next year. If it is a normal downturn, then the upturn would start early in the first quarter next year. The stock market , with its recent rise, is already anticipating it.
In the 1990/91 downturn, many in the profession were predicting the end of the profession as we knew it. The number of contactors is now much higher than it was then. In 18 months time, everything will look very different. Contractor numbers will be accelerating, rates will be rising, and everyone in the profession will be wondering why they didn’t buy the shares of agencies at their current knockdown prices.