UPS, Chipotle, and other stocks that could thrive as the labor shortage lingers

  • By Nicholas Jasinski,
  • Barron's
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As the Covid-era labor crunch has laid bare, there are few companies that don’t feel the pain when workers are scarce and wages are on the rise. But for investors looking to play the shortage, there are strategies for finding those least affected—or even, in some cases, poised to benefit—as the world grapples with a workforce crisis that’s unlikely to ease any time soon.

Technology—specifically robots, artificial-intelligence software, and other tools designed to increase automation or worker productivity—has emerged as a critical force for companies facing a labor shortage. Investors have two options here: the companies at work on this tech, or the ones putting it to use.

Annual global sales of industrial robots and factory automation are forecast to more than double by 2027, to more than $100 billion, according to Brad Neuman, Alger’s director of market strategy. The market is dominated by Switzerland’s ABB (ABB), Japan’s Fanuc (FANUY) and Yaskawa Electric (YASKY), and Germany’s Kuka (KUKAF).

Neuman says that Alger is shifting focus from companies that make these tools to those “employing AI or robotics to get a competitive advantage. Everyone will have to do this, but some companies are clearly adopting it faster than others, and we think those companies will gain share.”

United Parcel Service (UPS) is using more automated scanners and robots to process and sort packages. Amazon.com (AMZN) has long relied on robots in its warehouses to move goods around efficiently. Casella Waste Systems (CWST)—a waste-management company based in the Northeastern U.S.—uses robots to load trucks and to sort trash and recyclables.

Similarly, AI is a popular tool to juice worker productivity or automate complex jobs. The technology played a role in the development of Moderna’s (MRNA) Covid-19 vaccine, and is increasingly used to speed up drug discovery. Spices and condiments maker McCormick (MKC) has partnered with IBM (IBM) on an AI tool for developing new flavors and products. Alaska Air Group (ALK) uses AI for flight planning and route optimization. And railroad Norfolk Southern (NSC) uses machine vision and AI for predictive maintenance to reduce train and crew downtime.

Neuman also points to restaurant chains that have been digitizing everything from ordering to assigning kitchen duties to managing employees’ shifts in an effort to replace scarce labor or reduce costs. Those include Chipotle Mexican Grill (CMG), Wingstop (WING), and Shake Shack (SHAK).

A potential beneficiary of a shortage of higher-skilled labor is Korn Ferry (KFY), the staffing and executive-search firm. Korn Ferry, which also offers consulting services, has a market value of about $3.4 billion. Competitors include Robert Half International (RHI) and ManpowerGroup (MAN).

Robert Stimpson, chief investment officer of Ohio-based Oak Associates and manager of the River Oak Discovery fund, says Korn Ferry’s recruiting and search services will become more in demand in a labor-shortage-plagued future, and higher wages will increase the firm’s commissions. Other trends, including millennial job hopping and the outsourcing of human-resources functions, might boost the firm, as well, he says.

Recent results have provided a preview. Korn Ferry’s fee revenue was a record $2.6 billion over the past year, up 36% from its prepandemic level. Yet the shares have languished—recently trading below prices first hit in 2018—as investors fretted over a potential recession. Down 18.5% year to date to a recent $62, Korn Ferry shares, which have an annual dividend yield of close to 1%, appear cheap: The stock goes for 10.5 times forecasted earnings over the coming year, and has a free-cash-flow yield of 10%.

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