The long-term shift from a manufacturing economy to a service-oriented one has meant a great deal to the American labor market. Job opportunities in this day and age are very different from those available 50 years ago. That shift accelerated considerably in the last 20 years as the rise of the internet and computer technology hammered home a shift that was already under way.
Where once having a computer expert of IT guy might have been a luxury or something reserved for tech firms, it’s now hard to conceive of any sort of business getting by without someone on hand to ensure their computers, software, and internet presence are functioning properly.
And, as is the case for any major economic shift, real opportunity could be created by what’s happening. There’s a clear need in the marketplace, one that should continue to build, for access to the sort of IT talent that can keep your business functioning smoothly. More and more sectors that previously had limited IT needs appear poised to expand rapidly into a new era. The push to digitize health records or build smart grids to manage our energy concern represent areas where a crush of job openings for talented IT and computer experts should be in the making.
How might an investor play this? Well, two small-cap firms are dedicated specifically to staffing IT- and computer-related jobs. Both have seen their share prices suffer recently, but both could also present an intriguing opportunity for playing the continued migration of the American job market into more technology-oriented positions.
Computer Task Group (CTG)
The typical small-cap story usually involves a young firm striving to break out, but that’s not always the case. Take, for instance, Computer Task Group, founded in Buffalo by two former IBM (IBM) employees in 1966. The connection to IBM remains today as the technology blue chip remains CTG’s biggest customer, accounting for a quarter of revenues. The company today, with a market cap just north of $150 million, functions both as a consulting firm for IT solutions as well as an IT staffing company.
Certainly, it’s hard to imagine what sort of market there was for a computer staffing firm in 1966, but the company has survived and thrived over the years. What is interesting about the company’s origin story is that when the company was initially founded by Randolph A. Marks and G. David Baer, it was called Marks-Baer, Inc. and focused specifically on the medical community.
By 1968 the company had changed its name to Computer Task Group, but the connection to the health care sector is precisely why CTG could be an intriguing play. One major issue in the crafting of the Affordable Care Act was the digitization of health records. In many ways, health care remains mired in the 20th century, with paper charts continuing to be in use despite clear evidence that digital health records allow for better outcomes.
The final bill included tax incentives and other subsidies to help push major health care providers closer to a world where all our medical records are digital and can easily be shared between different providers. This shift would seem inevitable, and that could put CTG in a strong position. Consulting on setting up systems to manage these records as well as placing IT staffers with companies could mean an expansion on CTG’s existing business in the sector.
That is certainly no guarantee, and the markets clearly haven’t acknowledged this as a potential growth factor of late. Shares in CTG have been hammered this year, falling over 15% since the January and losing nearly half of their value over the last full year. However, that sell-off may have also created a real buying opportunity. Looking at the price ratios for CTG at the moment present the look of a real value stock, provided you’re not trying to catch a falling knife on this one. The P/E ratio is under 13, its PEG is 0.70, and its P/S ratio of less-than 0.40 would all point to CTG as a cheap stock. In the event that you buy CTG’s chance to capitalize on major growth in IT needs for the health care sector, not to mention the growth in the IT industry deriving from “big data” being en vogue, it would be easy to see CTG’s recent troubles as a real opportunity.
Zack’s appears to agree, upgrading the stock on April 30 to a buy with a $9.25 price target representing a 12.39% upside for the stock. That same day saw B. Riley analysts reiterate their own buy rating with a $9 price target.
General Employment Enterprises (JOB)
General Employment Enterprises is actually even older than CTG, having been incorporated in 1962. It is, however, a much smaller rival to the relatively well-established CTG, with a market cap just over $20 million. The company is focused on staffing services for IT, engineering, and accounting. Any company in that micro-cap range represents a clear risk, and General Employment has failed to show a profit aside from ekeing out $360,000 in 2011.
However, the low-margin, low-revenue business of General Employment appears to have gotten a major shot in the arm in December. The company acquired Scribe Solutions, a company committed to providing emergency rooms with “scribes” who can free physicians up from clerical work that can monopolize their time.
The market clearly saw real opportunity in the Scribe acquisition as the stock soared almost 600% in the immediate aftermath of the deal’s announcement. The stock gave back most of those gains in a sharp sell-off, but it remains up over 275% since the announcement.
The American job market is clearly shifting online, and that shift is far from over. There remain a number of businesses that have yet to completely embrace the tremendous opportunity contained in shifting themselves towards a more digital presence. As such, if today’s IT staffing firms can position themselves well, they could anticipate some of these changes to create real growth opportunities.
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