How to pick a stock in a downturn?

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: The hit Hollywood screen pair of Meg Ryan and Tom Hanks first appeared in a quaint 1990s film Joe versus the Volcano. Hanks’ character works in the morbid basement of an artificial prostheses factory, with a boss from hell who repeats just one line over the telephone through his role: “He can get the job, but can he do the job?”

The bursting of the bubble in the job market during the dotcom days of the nineties seems like a bout of influenza compared to the seemingly terminal pall of gloom over the global workforce now. The Organisation for Economic Co-operation and Development expects unemployment in the rich nations to rise to 9.9% of the labour force in 2010, even as chilling accounts of lost jobs and desperate families emanate from across the developing world, including the Bric (Brazil, Russia, India and China) clique.

Some experts (and politicians) have reported sightings of ‘green shoots of recovery’ as ‘glimmers of hope’ to lead the world out of this downturn. US stocks had their best six weeks since 1938, with the Standard & Poor’s 500 equity index rising 29% by April 20 after hitting a 12-year low on March 9. The BSE Sensex rose by nearly 35% in the same period.

Some positive corporate results aided by governments going easy on accounting standards may have stirred up the bourses. But the real economy isn’t just about numbers—global trade wheels are still stuck and unemployment is soaring, so demand for real output should be sluggish at best.

Hanks’ boss may have had a different catchline scripted for him today. Probably “He can’t get the job, even if he can do the job!”

The employee as a stock tip

With input costs going down after commodities came off their peaks, employee costs have been sticking out like a sore thumb—so businesses have been ‘rightsizing’ to retain investor interest. But with quarter to quarter visibility virtually zero, investors may be better off looking at employees from a perspective that goes beyond counting their costs.

A fascinating study by Alex Edmans, finance professor at Wharton School in the University of Pennsylvania, firmly establishes that investing in firms with high levels of employee satisfaction is a profitable trading strategy.