Kelly Services: Long-Term Gains in Temporary Help

07/25/2019 5:00 am EST

Focus: STOCKS

Neil Macneale III

Editor, 2 for 1 Stock Split

Our model portfolio closed out the month of June above $550K, meaning the 2 for 1 portfolio has grown 1000% since its inception 23 years ago; that’s an 11% annualized return, explains Neil Macneale, editor of 2-for-1 Stock Split Newsletter.

Our long-standing practice has been to add one stock to our portfolio each month, chosen from among those that had announced 2-for-1 splits. This has been increasingly difficult due to the lack of stock splits.

For example, there was just one 2 for 1 split announcement since last month's newsletter — Northern Technologies International Corp. (NTIC). However, that company is too small and too thinly traded to include in our portfolio.

Nevertheless, it’s a neat little company that you might want to keep your eye on. The firm makes and sells rust-proofing materials and also manufactures a bio-degradable plastic, a product bound to be in increased demand worldwide. The numbers are decent and it pays a nice dividend. Too bad it’s not a bigger company.

With no new split candidate to recommend, we are going to add Kelly Services (KELYA) to our portfolio. Back in the day, a person hired for temporary work in an office was often referred to as a Kelly Girl.

Founded in 1946 in Troy, Michigan, Kelly is now a worldwide business with 7,900 employees and annual revenues of over $5.5 billion.

It has evolved to provide a much more comprehensive list of staffing services, but we can still think of it as the company you can go to for a quality temporary or contract employee.

Kelly will place over a half million employees in work positions this year. Kelly will probably not be splitting its stock, but it generates a terrific number on our scoring algorithm.

Selling at below book value, with a forward looking PE of less than 10, the stock is way over at the value end of the value-to-growth spectrum. The company has some short-term debt but zero long-term debt and pays a respectable 1.15% dividend.

There is a lot to like here but this will probably not be a rocket. The company's profit margin and returns are rather thin and sales have been fairly flat for several years.

However, Kelly has recently acquired Global Technology Associates and NextGen, two niche engineering consulting firms that should be adding to the bottom line immediately.

It appears the market has not recognized this change in circumstances. This is a defensive play, but with the potential for an increase in the stock price over the next few years.

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