Changing Job Market Could Boost These Shares 15%

Did you get a job for the holidays? A whole lot of people did last month, as evidenced by the better-than-expected November employment report that showed the U.S. economy added 203,000 new jobs during the month, well above analysts' expectations for 183,000 jobs. Moreover, the unemployment rate fell to 7%, a five-year low.

One company that is taking advantage of the improving job market and is well positioned for increased growth going forward is Kforce (NASDAQ: KFRC). The company is a leading provider of professional and technical specialty staffing services. It operates in five segments: technology, finance and accounting, health care, government solutions and outsourcing solutions. Basically, just about every area of the economy that's got big-time growth tailwinds, you'll find Kforce doing the staffing.

On Monday, KFRC spiked 7% after Credit Suisse initiated coverage on the shares with an "outperform" rating. The bank set a one-year price target of $25. Early this year, Credit Suisse dropped coverage on KFRC, but that was due to a personnel change at the analyst level, and not due to anything the company had done. The reinstated coverage on KFRC did, however, give traders confidence to jump back into the shares.

Coverage aside, I think macro events in the labor market represent a positive confluence of factors that argue favorably for a continue ride higher in KFRC shares. A renewed willingness to hire temporary staffing has helped Kforce's revenue and earnings. In fact, some of my colleagues who follow this sector closely think that there's a structural shift taking place in the labor force toward temporary and contract employment, and away from hiring full-time workers.

No doubt this is due in part to the ramifications of Obamacare, which include future employer mandates to provide health care coverage for small companies with more than 50 employees. It's also due in part to the regulatory costs associated with hiring new personnel, and the cost of training and retraining new hires. The thinking here is why not just outsource the job to skilled assets -- and that's what Kforce supplies.

On Oct. 29, Kforce reported record revenue for the third quarter. The company saw top-line growth of 11% to $299.7 million versus $270.2 million in the same quarter last year. Net income in the quarter was $9 million, or $0.27 per share, versus the slightly higher $9.3 million, or $0.26 per share, a year ago.

As for the technical picture, we see a couple of bouts of volatility in 2013.

KFRC Stock Chart

The big jump in late October was a result of that record revenue report. The latest move higher on the heels of the Credit Suisse coverage sent the stock back above its 50-day moving average, and it's now trading very near its 52-week high.

I suspect that as companies continue making adjustments to their workforces, Kforce will continue to provide skilled staffing. That is likely to keep that record revenue rolling in, and I think KFRC can power higher over the next few months.

Recommended Trade Setup:

-- Buy KFRC at the market price
-- Set stop-loss at $18.55, approximately 8% below the current price
-- Set initial price target at $23.15 for a potential 15% gain in three months

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