Paychex (PAYX)

A payroll provider. ADP (ADP-Q) is the big one that deals with governments and large institutions, while this one deals with small businesses. If you are going to get any growth in the US through fiscal policy, the growth will come from small businesses of 15 to 50 employees. This does payroll and HR. What he really likes is that before they remit payments to the IRS every 2 weeks on payroll, they get to bank the money. For every .025% interest rate rise, they make $.01 a share to the bottom line, so if the Fed has 6 increases over the next 2 years, they are going to make $18 million. Dividend yield of 2.9%. (Analysts’ price target is $59.50.)

(A Top Pick Aug 25/16. Down 6.51%.) This should work perfectly with a Trump government. They do all of the payroll processing, HR, 401K plans. They are really sticking with small businesses of 15 employees or less. Infrastructure and growth in the US is really going to start with the small businesses. This is really a cash cow.

(Market Call Minute.) He likes the employment situation in the US. It is slowly improving. There are more people moving to full-time jobs, which is really bullish. This stock has pulled back into support and there should be strong support at around $54-$53. Trading at 25X next year’s earnings.

There is an enormous amount of competition between this and Automatic Data Processing (ADP-Q). She sees competition as holding them both back. They are both trading at very high multiples in the upper 20s, and you are really not getting paid for it in growth. She doesn’t see this as attractive. Trading at 27X forward earnings.

If interest rates were to rise, this is a payroll processor that gets to bank $3.5 billion of other people’s money over the weekend before they remit back to the IRS. For every .25% that interest rates rise, this makes $7.5 million in free money. On top of that, they also provide H&R services, time management, 401K programs as well as health benefit supplements under the Obama program, for all the small and medium-sized businesses. Have been growing at about 5%-6%, and are now starting to grow by 8%-10%, because non-payroll stuff has a greater growth platform. Dividend yield of 3%.

He prefers ADP (ADP-Q). Both names have had a real run-up since the US unemployment situation started to improve. This one is basically 65% payroll and 35% HR services. Feels that most of the juice is out of the stock. PE is 26-30 times. Although the US economy is improving, the turning of the corner from recession/unemployment coming down has already taken place.

(A Top Pick Jan 30/14. Up 14.79%.) As interest rates rise, that will be a driver for earnings. Pays a dividend which increases fairly regularly. Has virtually no debt when you look at the balance sheet. 3.3% yield.

A payroll processing company that is leveraged to the small and medium-size market. Leveraged to interest rates because of the payroll float it carries. Higher interest rates would be a catalyst for a higher range. Almost no debt. Good dividend of 3.46% that grows over time. A safe and steady slow growing story.

Benefits from unemployment decreases. Services the small/medium size markets from a payroll point of view. However, it also has a huge float because it manages payrolls. Any increase in interest rates will also carry this company higher. Has a history of increasing its dividend for 15 consecutive years. Maintained its dividend through the financial crisis and has recently started increasing it again. Pristine balance sheet and very, very little debt. Yield of 3.31%.

Tied to rising interest rates because every 2 weeks, when they do payroll tax deduction, they get to bank it over the weekend before they send it to the IRS. If rates get to their historic value of about 5%, this adds almost $0.50 a share to their profits. Also, if there is a recovery in the US economy, most of it comes from small business first.

Payroll company for small to medium size business segment. Increased dividend for last15 years. 4% dividend. As employment increases this will continue to grow. No debt. As interest rates increase they can get yield on the very large float they carry.