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3 Ways to Play the Economic Data in 2011

BALTIMORE ( Stockpickr) -- Since the financial crisis of 2008, economic data have become a mainstream indicator of the world's market pulse. Suddenly, Main Street investors are paying attention to metrics such as housing starts and jobless claims, and the broad market is reacting directly to new data as soon as it hits the street.

For investors, that increased interest in economic data is a trend that's worth exploring.

To do that, it's important to know where to focus your efforts. The truth is that some stocks are more susceptible to the market's economic news than others. By honing in on trades that have higher data-induced volatility, traders can actually eke out gains from this market. This isn't the first time we've looked at the investability of economic indicators; back in August, we took a look at three ways to play the data.

Related: Earnings Trades for the Week

Now, though, with a new market tone being set in 2011, it's time to look at three updated ways to trade that economic data.

1. Jobs Numbers

The only economic indicator play that hasn't changed in 2011 is jobs data. Jobs data continues to be one of the most hotly anticipated sets of numbers that comes out each week, and for good reason. Higher employment rates mean that the U.S. population has more income to spend on products and services. Jobs numbers are also a trailing indicator that suggests whether firms are seeing high enough utilization to justify increasing their headcounts. Clearly, then, this metric has a big impact on the stock market.

But I still think that the best way to play the trend is through Paychex (PAYX - Get Report), the $11.6 billion payroll processing and HR outsourcing firm that caters primarily to small and medium-sized businesses. Since we discussed the stock back in August, the unemployment rate has dropped, and nonfarm payrolls have climbed higher; in kind, shares of Paychex have rallied more than 25%.

A big part of Paychex's correlation with jobs numbers is the kinds of companies that it services. By focusing on smaller clients, the company's earnings are more elastic -- and they can have bigger swings. At the same time, Paychex has spent considerable time increasing its HR and retirement offerings to existing customers, a factor that helps the company generate higher comparable profits for each additional employee hired by clients.
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