Outsourcing Opportunities

A number of smaller companies are benefiting from the trend toward outsourcing various business functions, rather than hiring full-time employees.

Last week, I wrote about temporary staffing firm On Assignment ( ASGN). Hiring temps is another way that companies get the job done, without having to make the commitment to a full-timer or to pay for benefits such as health care.

Consulting and research firms are also beneficiaries of the no-hiring trend. ExlService Holdings ( EXLS), a New York-based firm that provides research and analytics services to financial industry clients, is forming a sideways chart pattern, trading in a narrow price range.

The company reports its first quarter on May 2. Analysts have pegged earnings at 36 cents a share on revenue of $104.43 million. That would be a year-over-year improvement of 9% on the bottom line and 43% on the top line.

It already has a good track record of fundamental strength. Revenue growth was 18% or higher in every quarter over the past two years. Earnings grew between 9% and 475% during that time. The 475% year-over-year earnings increase was in the second quarter of 2010. Comparisons have grown a bit tougher since then, with growth levels still solid but tapering to the double or single digits.

The chart is showing good support above its 50-day moving average. However, there are some chart indicators that I like even better. ExlService's 10-day moving average has just crossed above its 20-day line.That kind of short-term moving-average cross is often a precursor of more price gains.

Of course, the earnings report can spur a big move in either direction. It's not unusual for a stock to either gap higher or get severely punished on the news.ExlService has a market cap of $871 million, and it is very thinly traded, moving just 158,000 shares a day (on average).

While its former high, reached on Feb. 29, could present an entry point of $28.85, the moving-average cross offers an earlier opportunity for more aggressive buyers. With the major indices still in a downtrend, however, any buys are riskier at this time. In addition, the upcoming earnings report is another event to be aware of.

If you liked this article you might like

Here's Why These 2 Undervalued Stocks Are Gems in the Tech Sector

On Assignment (ASGN) Is Today's Strong On High Volume Stock

Putting 4 Small-Cap Growth Stocks on Watch List

Four Small Cap Growth Stocks to Watch

Insider Trading Alert - GPC, ASGN And CJES Traded By Insiders