It would seem that we need an entire salt shaker, rather than just a grain of salt, these days to navigate the headlines and stay focused on the long-term prospects of our broadly diversified portfolios of what we believe to be undervalued stocks. Let me explain why – and why I’m boosting our allocation to ManpowerGroup (MAN), says John Buckingham, editor of The Prudent Speculator.
We were warned that the partisan stalemate in Washington would make it difficult to pass legislation to raise the debt ceiling, even with Treasury Secretary Janet Yellen warning that the so-called “X-Date” when Uncle Sam would default on its obligations was fast approaching.
A few days later, House Speaker Kevin McCarthy and President Joe Biden announced an agreement in principle on a two-year government budget in exchange for lifting the debt ceiling through January 2025.
We were then told that the legislation, dubbed the “Fiscal Responsibility Act” might not even make it out of the House Rules Committee, given Mr. McCarthy’s difficult path to the Speaker’s gavel.
However, when Congress reconvened after the Memorial Day holiday, the measure moved along with the full house voting Aye: 314 to No: 117 on May 31. The Senate followed on June 1 with another nail-biter of a vote, 63 to 36, and Mr. Biden stated he would quickly sign the bill into law, thus avoiding a catastrophic default.
Obviously, there are never any assurances when it comes to DC politics and the nation’s $31.4 trillion of debt hardly is anything to cheer about. But this episode goes to show why you can’t put too much stock in worrisome headlines.
Not surprisingly, we think comments from Warren Buffett are helpful. In 1987, the Oracle of Omaha wrote, “In the short run, the market is a voting machine but in the long run it is a weighing machine.’ The speed at which a business’s success is recognized, furthermore, is not that important as long as the company’s intrinsic value is increasing at a satisfactory rate. In fact, delayed recognition can be an advantage: It may give us the chance to buy more of a good thing at a bargain price.”
ManpowerGroup (MAN)
Let’s shift to MAN now. Manpower is a premier global staffing firm with broad reach and extensive job networks. The company has branched out into all aspects of human resources and typically generates more than three-quarters of its revenue from European countries.
Shares are down more than 20% since early February, no doubt not helped by weaker-than-expected Q1 financial results. But even with global economic headwinds and recent operational sidesteps, the stock trades at an attractive forward P/E ratio of 11, with significant free cash flow and a dividend yield of 4.2%.
Manpower has weathered many crises over its 70-plus-year history and its solid financial footing has allowed it to continue to make acquisitions, pay dividends and buy back stock along the way.
Recommended Action: Buy MAN.
