TOM LEE: Here are 15 great stocks that won’t get smoked by wage hikes

The upward push in wages appears to be finally happening. That’s good news for America’s workers.

But for some companies, it could put them in a squeeze.

“Higher wages is positive overall for the U.S. economy and positive for consumer spending,” wrote Tom Lee of Fundstrat in a note to clients Friday. “However, sectors and industries with a high labor component are going to have less incremental benefit. To measure this, we looked at ’employees per $10 million in sales’ for the 10 economic sectors.”

The squeeze on profit margins is going to be especially acute, according to Lee, on consumer discretionary companies such as hotels, clothing retailers and restaurants especially as retail sales decline.

“Consumer Discretionary is the most labor intensive sector, employing 36 workers for each $10 million in sales, or 52% higher than the Russell 1000 overall,” said Lee. “Think of it this way, Consumer Discretionary is 17% of the $12.7 trillion in sales but is 26% of the 30 million workers employed.”

In a note to clients on Friday, Lee identified 15 stocks that have low labor exposure and good growth potential. We’ve compiled his picks, along with the stock price upside potential, the employees per $10 million in revenue, and estimated earnings per share growth for 2016.

Check out all of the suggestions below.

Air Lease Corp.

Ticker:
AL

Industry:
Diversified Financial

Implied Upside:
53%

Employees per $10 million in revenue:
1

Estimated 2016 EPS growth:
21%

Comment: “We believe there are only a limited number of available qualified executives in the aircraft industry, and we therefore have encountered, and will likely continue to encounter, intense competition for qualified employees from other companies in our industry,” said the company’s most recent annual report, which also mentioned it only has 65 full-time employees.

Altria Group

Ticker:
MO

Industry:
Agriculture

Implied Upside:
13%

Employees per $10 million in revenue:
5

Estimated 2016 EPS growth:
9%

Comment: “The total number of shares purchased include … forfeitures of restricted stock for which consideration was paid in connection with termination of employment of certain employees (which totaled 248 shares in October and 288,672 shares in December),” said the company’s most recent annual report.

Amazon

Ticker:
AMZN

Industry:
Internet

Implied Upside:
9%

Employees per $10 million in revenue:
15

Estimated 2016 EPS growth:
81%

Executive Comment: “We’ve added four sort centers in the US bringing the footprint to 23,” said CFO Brian Olsavsky. “We’re staffing earlier in those locations, we’re in good shape for the holidays and ready to go. The other issue is there, the other reason is that we are also doing a lot of conversion of temp workers to full-time workers purposefully.”

See the rest of the story at Business Insider

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