In a heartening development, a key metric of wage growth increased significantly last year, signaling that gains have begun to accrue for the country’s workforce. According to December’s jobs report, average hourly earnings notched up its best yearly performance in 2016 since the economic recovery began.

Nearly all economic sectors have benefited from such pay raises. However, specific industries are performing much better on this front. Information technology, leisure, wholesale trade, manufacturing and construction are at the forefront of wage gains, and it makes good sense to pick stocks from these areas. 

Annual Hourly Wage Increase Highest Since 2009

According to the December jobs report, the U.S. has now experienced 75 consecutive months of job growth. This the longest stretch of job gains since 1939, as per The Washington Post. Even though wage growth was strong over 2016, monthly job creation remained below the average of 236,000 experienced over 2014 and 2015.

However, since Fed policymakers and most experts contend that the economy is at full employment, employers have to raise wages to retain their existing employees and attract new talent. Steady gains in employment have pushed workers’ pay higher, with average hourly wages climbing 0.4% in December. This in turn pushed the annual gain last year to 2.9%, the fastest increase since the economy started to recover in mid-2009.

Premium, Entry Level Jobs Both Pay Higher

Most wage gains seem to be centered around the top jobs which require significant levels of skill and expertise. However, entry level positions which do not require a very sophisticated skill set are also experiencing rapid wage increases. At the very top, software, energy production, telecom and entertainment workers are among the best paid employees. These paychecks are rising in excess of 4% every year.

On the other hand, low level workers who are the most essential component of the country’s healthcare sector have not performed as well. These wages increased by only 2% over 2016. However, the sector has benefited from an aging population, with wages increasing by 4.3% at nursing homes over 2016. Nowhere is evidence of a rapidly aging population more evident than the wage increase at funeral homes, clocking in at 7.1% for the 12 months ended November.

Our Choices

Even though the jobs report for December has a decidedly muted tone, the wages gains accrued over 2016 point toward the progress made by the economy last year. This phenomenon is now benefiting specific sectors more than others and since they are able to absorb such hikes, they make for compelling investment options.

Adding stocks from the information technology, wholesale trade, manufacturing, construction and leisure sectors is a prudent option at this point. However, picking winning stocks may be difficult.

This is where our VGM score comes in. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select winners. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM score.  

We have narrowed down our search to the following stocks, each of which has a Zacks Rank #1 (Strong Buy) and a good VGM score. 

MiX Telematics Limited (MIXT - Free Report) is a provider of fleet and mobile asset management solutions using the software as a service delivery model on a global scale.

MiX Telematics has a VGM Score of A. The company has expected earnings growth of 44.7% for the current year. Its earnings estimate for the current year has improved by 7.7% over the last 60 days. The stock has returned 65.5% over the last one year, outperforming the Zacks Internet - Software sector, which has returned 8.2% over the same period.

The Children's Place, Inc. (PLCE - Free Report) is a growing specialty retailer of apparel and accessories for children.

Children's Place has a VGM Score of A. The company has expected earnings growth of 43% for the current year. Its earnings estimate for the current year has improved by 1.8% over the last 30 days. The stock has returned 62.8% over the last one year, outperforming the Zacks Retail - Apparel and Shoes sector, which has contracted by 12% over the same period.

Argan, Inc. (AGX - Free Report) is a provider of construction engineering, procurement and consulting services, among others to the power generation and renewable energy sectors.

Argan has a VGM Score of A. The company has expected earnings growth of 69.2% for the current year. Its earnings estimate for the current year has improved by 4.5% over the last 30 days. The stock has returned 130.1% over the last one year, outperforming the Zacks Building Products - Miscellaneous sector, which has returned 33.4% over the same period.

Altra Industrial Motion Corporation (AIMC - Free Report) is one of the leading manufacturers and distributors of a diversified range of mechanical power transmission, or MPT components.

Altra Industrial Motion has a VGM Score of B. The company has expected earnings growth of 17.1% for the current year. Its earnings estimate for the current year has improved by 4.6% over the last 30 days. The stock has returned 59.1% over the last one year, outperforming the Zacks Manufacturing - General Industrial sector, which has returned 34.2% over the same period.

Belmond Ltd. (BEL - Free Report) is involved in the hotel and travel businesses.

Belmond has a VGM Score of B. Its earnings estimate for the current year has improved by 3.3% over the last 30 days. The stock has returned 55.2% over the last one year, outperforming the Zacks Hotels and Motels sector, which has returned 24.6% over the same period.