Payroll Profits

A US economic recovery isn’t an entirely positive prospect for investors, Cramer said Wednesday. While everyone would cheer, say, a decline in unemployment, they’d most likely jeer the Federal Reserve for raising interest rates, which is what happens when the economy turns around.

But what if investors could play the rise in jobs and rates? Cramer thought he’d found a way in Paychex and Automatic Data Processing . Both companies benefit from an improved business environment, falling unemployment and tighter monetary policy.

It’s all about the recovery for Paychex and ADP. The lack of new business formation last quarter wouldn’t be a problem if the economy picked up. Nor would the bankruptcies that fueled client losses. And more jobs mean more volume, something these two firms have been lacking during the downturn.

Paychex and ADP profit from more than just increased volume, though. They collect interest on the money their clients send to cover the employee payrolls. So the higher the Fed raises rates, the bigger the companies’ earnings.

Plus, the company has been adding clients. So when employment picks up, Cramer said, the amount of paychecks handled by Paychex “explodes.”

If investors want a play on the recession’s end and the Fed’s inevitable reaction to it, Cramer recommended they buy Paychex.

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