Right-Sizing Companies May Prove Market Leaders This Year

Copy machine

The job market held up well last year, with unemployment near historic lows. That’s even after rising interest rates weighed on potential economic expansion. And it’s even after many big-cap tech companies announced tens of thousands of layoffs.

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  • That trend will likely continue this year. Companies are finding ways to do the same – or more – with fewer employees. Advances in technology such as AI can make that happen.

    The latest company to announce layoffs is Xerox (XRX). The imaging technology company is targeting a 15 percent drop in its workforce this quarter, totaling over 3,000 employees.

    That’s an aggressive cut to make so quickly. But the company is rolling out a new operating model, and expects to improve profitability.

    Xerox is in need of a new business model. They’re currently losing money, and revenues dropped 6 percent last year. Any operational improvements and lower cost of salaries could help make for quick improvements.

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  • So while shares initially dropped on the news, the stock may be set up for a short-term rally in the coming months.

    Action to take: Xerox shares trade at less than 10 times forward earnings, and at a 20 percent discount to their book value. Improved returns could lead to a quick revaluation higher. At current prices, shares yield 5.5 percent.

    For traders, the April $17 calls, last going for about $1.15, could see mid-double-digit gains on a move higher in the coming weeks.


    Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any companies mentioned in this article.

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