I had a chance to catch up on some long overdue reading this past weekend, including the book Debunkery by Ken Fisher. In the book, Fisher details several common myths that cost investors money.
One of his myths had previously been on my mind. It's the idea that the mass retirements of "Baby Boomers" are going to derail the economy by bankrupting Social Security and medical services.
Ken Fisher believes it's bunk, but I'll take it a step further. I literally believe the exact opposite is true. The "Baby Boomers" aren't going to derail our economy, they're actually going to save it.
The Baby Boomer scare is bunk
For every Boomer that outnumbers a younger adult, there's one fewer skilled worker in the economy. These "scary" Baby Boomer retirements actually have the potential to lead the U.S. to a skilled labor shortage, which will lower unemployment and drive many industries forward.
- In 2008 it was widely known that the "Baby Boomer" labor shortage was a huge concern among manufacturing Executives. During that year, 81% of employers reported it as a top concern according to Nielsen and ATS, a jump of nearly 20% in ten years. It may surprise you that, even post-recession, Executives are as concerned as ever.
- In fact, in 2012 41% of employers (up 7% since 2010) reported an inability to fill open positions. In addition to an aging workforce, younger workers just aren't as interested in skilled trades as the retiring workforce was, which is why seemingly basic positions like Machinists have seen torrid demand.
- There is a huge bull just waiting for the boomers to retire. According to a 2012 survey by the U.S. Bureau of Labor Statistics, since 2000, the number of workers age 45 and older has increased by nearly 28%. During the same time period, the average worker aged 25-44 has decreased by 6.8 million.
While a potentially lower unemployment rate will benefit all sectors, being partial to labor markets, I prefer businesses that connect skilled workers with employers.
Here is Your Skilled Labor Portfolio
I've spent the past two years fawning over LinkedIn (LNKD.DL), and I'm not going to let a high valuation stop me now. Sure, the stock is trading at a P/E ratio over 600 at the moment, but as fellow Fool Dan Sparks recently pointed out recently, the company does a far better job at monetizing its members than other network sites, like Facebook.
I like LinkedIn because it has a "network effect" moat that's actually useful. People aren't just logging on to stare at pictures of their friends; they're networking, finding jobs, and recruiting candidates.
LinkedIn recently reported another blow-out quarter, lead by new membership growth of 37%, and a whopping 69% gain in its talent solutions business. The company has untapped options to maximize the talent solutions business. For one example, it could stop letting Recruiters connect with (and thus recruit) candidates for free. LinkedIn could also charge recruiters to post jobs in its group sections, which it currently does not.
Premium memberships are just a preview of how LinkedIn can potentially squeeze Recruiters in the future. As membership increases, so will Recruiters willingness to "pay to connect" with top talent.
This stock is very pricey today, so I can't tell you to run out and buy a truckload of shares today. I like the idea of buying a third of your position on any decent pullback, and then holding on to LinkedIn for a very long-term investment.
If you're looking for a similar business, with a cheaper valuation, then Dice Holdings: (DHX 3.39%) may be a good fit.
Dice's products (specialized career websites, career fairs, etc.) help recruiters fill skilled positions because they're so specialized. Hiring authorities, which are Dice's customers, believe in the brand because Dice only fills niche positions. For instance, one of Dice's job boards, "Rigzone," only targets Petroleum Engineers.
If you believe that the need for skilled workers will thrive as the baby boomers retire, then you may want to consider Dice despite its lackluster second-quarter results. Those results showed a 7% decline in earnings, but Dice still beat expectations and sales were up 7% as well.
The company, as you can see, has seen steady revenue growth since the recession and simply needs to find a way to drive more of their income to the bottom line.
DHX Revenue TTM data by YCharts
With a forward P/E of just 14, this attractive job board is "cheaper" than LinkedIn, and it may make a decent acquisition target as well.
The view from the other end
I believe businesses that manage this decline in skilled labor the best will benefit just as well as the companies that help fill the void.
This is where Google (GOOGL -1.76%) really shines.
Google earns more revenue per employee than its peers, nearly 30% more than the tech industry as a whole.
Just look at how Google clobbers a couple of its less innovative peers in this category:
GOOG Annual Revenue Per Employee data by YCharts
I mention innovative, specifically, because I feel that is the real reason that Google outpaces competitors in this area. As I've written previously, Google routinely tops Fortune's list of the "100 Best Places to Work For" and that really matters to tech candidates.
Working at Google is considered so desirable that a 20-20 special, and even a movie, has been dedicated to the subject. I know this is an unconventional way to look at a tech investment but, in technology, having skilled staff means having superior innovation. With a P/E of 25 and a forward P/E of just 16, this innovator is also looking like a good value.
Invest in tomorrow
I should thank Ken Fisher for reigniting my passion for this myth, and I wonder if he would also agree that there is a bull market behind the Boomers.
I believe that great investments are made when great companies meet game changing trends. The fact that so few see this potential trend, to me, offers value for long-term investors.
