🔎CBIZ: First 📉, then 📈?
White collar work has a future if it's not task-driven, but trust-driven. CBIZ has all the ingredients to recover when sentiment swings back. The stock is broken. The business is not.
TLDR Summary
Popular investment themes can create powerful momentum for both winners and losers. This momentum often takes prices far beyond sustainable levels. Winners then come back to earth and losers reemerge from the ashes. 20/21 was the peak of the renewable energy trade. Back then, the right move was to bet on oil. 23/24 was the peak of the GLP-1 trade. Many supposed GLP-1 losers have outperformed broader indices since then.
Today, AI predicts the death of the white collar worker. Investors shun any stock with white collar exposure. Recruitment firms, gig work marketplaces, professional services firms and employment infrastructure companies…many of their stocks are down massively and deemed too toxic for future-proof portfolios. This offers a compelling opportunity to look into contrarian ideas.
CBIZ offers a particularly interesting setup in this context. It’s a middle market professional services firm that successfully compounded for decades. Their growth has been stalling lately which has made the stock sell off dramatically.
Investors fear that AI will eat their business. But so far, AI hasn’t eaten anything. The company is rather struggling with a cyclical softening in the middle market and with the integration of a transformational acquisition.
The stock is broken. The business is not. Once this consolidation period has passed, markets will discover that. The stock is now trading at just 6.5x their 2026 earnings guidance.
If you are afraid of AI, worry about companies the most important assets of which are technology assets. Because the replacement costs of those have potentially fallen drastically. Companies that are heavy on relationship assets are likely more protected. Professional services firms are mostly relationship assets.
Anti-thematic investing
Remember the renewable energy bubble of 2020/21? When EV start-ups reached market caps north of $100bn on barely any revenues and Cathie Wood’s ARK Invest raised more capital than Blackrock and Vanguard? That was exactly the right time to buy into oil & gas stocks.
Or remember the GLP-1 bubble of 2023/24? Investors were not only longing Novo Nordisk, Eli Lilly and some other GLP-1 related start-ups. They also shunned or even actively shorted companies that capitalized on obesity, most importantly sugar dealers and obesity care providers. Investors braced themselves for a world with eradicated obesity.
And what happened then? Many of those ‘losers’ performed actually quite well, in fact even better than broader indices, at least on a volatility-adjusted basis. Dialysis provider Davita is up 110% since its low in late 2023. Coca-Cola is up 40% since then. McDonald’s is up 25%. Intuitive Surgical (bariatric surgery exposure) is up 78%.
You can make a ton of money by being early in a major innovation theme. But you can also make money by being early in betting on its unravelling.
The AI trade of today rhymes with the renewable trade of 2020/21 and the GLP-1 trade of 2023/24. All three cases relate to impactful technologies that are changing consumer preferences and disrupt existing business models. In 2020/21, investors called peak oil. And were wrong. In 2023/24, they called peak obesity. And were wrong. Today, they call peak white collar work. Will they be wrong again?
The death of the white collar worker
You can see the consensus in the public discourse in traditional and social media. But you can also see it in the performance of stocks with exposure to white collar work:
Take recruitment firms for example. Robert Half RHI 0.00%↑ is down 80% from its peak. ManpowerGroup is down 79%. ASGN is down 69%.
Or take gig work marketplaces. Upwork UPWK 0.00%↑ is down 81%. Fiverr FVRR 0.00%↑ is down 97%.
Or take the large professional services firms. Accenture ACN 0.00%↑ is down 52%. Infosys INFY 0.00%↑ is down 48%. Tata Consultancy is down 46%.
Or take employment infrastructure companies. H&R Block HRB 0.00%↑ (tax filing) is down 51%. ADP ADP 0.00%↑ (payroll processor) is down 36%. Paychex PAYX 0.00%↑ (payroll processor) is down 42%. Thomson Reuters TRI 0.00%↑ (white collar software) is down 68%.
I won’t show screenshots of their charts here for space reasons. But check them out if you’re interested. Some of them are crashing at breathtaking pace. They look like meme coins after the rug pull.
However, what differentiates them from meme coins is that they are actually still profitable. Most of their drawdowns are not earnings-driven, but valuation-driven. As a result, some of them are trading at remarkably low forward earnings. Upwork is at just 8x. Fiverr is at 5x. H&R Block is at 6x.
I can imagine that several of these stocks have unique investment stories to tell if I investigated them more closely. But there is one stock that struck me more than any of them when I explored this theme: CBIZ.
I think you will like them, too. Let’s dive in.
