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Looking back at 2020, we see the year of the COVID-19 pandemic, the biggest freefall of the economy since the great depression, a record fast bear market and an equally quicker “V-shaped” recovery driven by monetary and fiscal policy stimulus.
While the pandemic dealt huge blows to almost all sectors, the Business Services service sector has managed to make a turnaround on gradual resumption of business activities. The sector is currently balancing between growth in services pertaining to transportation, warehousing, retail, wholesale, professional, technical, information, finance, and weakness in entertainment, travel, rental, leasing and educational services.
A Throwback of the Service Sector in 2020
At the beginning of this year, the sector was already grappling with waning global demand and a prolonged U.S.-China trade spat. On top of that, the coronavirus pandemic wrecked havoc, bringing almost every business to a near stand-still. Per the Institute for Supply Management, the Services Purchasing Managers’ Index (PMI) had plunged to 41.8% in April — the lowest reading since May 2009. The index remained below the 50 mark in April and May, interrupting an impressive growth rally of 122 consecutive months.
However, the Services PMI rebounded with the gradual reopening of the economy and resumption of business activities, and has been above 50 for seven straight months since June, highlighting expansion in service activities. It touched 55.9% growth in November.
The Sector’s Prospects for 2021
The Service sector is a major beneficiary of economic health. The only hope for improvement of the U.S. economic health is a successful vaccination. While recovery challenges prevail amid the second wave of virus insurgence in the United States, lawmakers’ push for a new $900-billion coronavirus relief package and the success of mass vaccine hitting the markets in early 2021 can help the economy gather strength steadily.
Markedly, companies that have established successful work-from-home models, focused on digital transformation, and witnessed demand for their services going up or staying constant amid the pandemic-induced mayhem have performed significantly well through this year. With digitization and remote working becoming parts of the new normal, these companies are poised to continue their stellar performance in 2021 as well.
Here’re Our Picks for 2021
We have shortlisted four service stocks that carry a Zacks Rank #1 (Strong Buy) or 2 (Buy) and have been up more than 20% so far this year. You can see the complete list of today’s Zacks #1 Rank stocks here.
Black Knight, Inc. BKI: This integrated software, data, and analytics solutions provider has seen its stock gaining 37.6%, year to date, on its expanding client base, strengthening client relationships through innovative solutions, strategic acquisitions and a robust digital footprint.
The company currently flaunts a Zacks Rank of 1. The Zacks Consensus Estimate for 2021 earnings has been revised 4.8% upward in 60 days’ time to $2.38, indicating year-over-year growth of 15.4%.
Copart, Inc. CPRT: This online auctions and vehicle remarketing services provider is benefiting from new offerings and features that it has recently deployed for both internal and customer facing applications.
Enhancements in machine learning-powered price estimation tool for insurance carrier partners, deployment of electronic signature processes and updated communications technology have helped Copart effectively combat the pandemic-induced weakness in business. While its sales still trail behind, volumes are now almost back to the pre-covid levels.
The Zacks Consensus Estimate for the company’s fiscal 2021 earnings is currently pegged at $3.1, suggesting a year-over-year jump of 20.6%, having moved 7.6% north over the past 60 days. The Zacks Rank #2 stock has appreciated 35.3%, so far this year.
LiveRamp Holdings, Inc. RAMP: This Zacks Rank #2 company is a provider of enterprise data connectivity platform solutions. The company is benefiting from focus on digital transformations and data-driven strategies. Additionally, it has been riding on land, expand and extend models with growth initiatives like Safe Haven and advanced television gaining considerable momentum.
Shares of LiveRamp have rallied 48.9%, year to date. The Zacks Consensus Estimate for the fiscal 2021 bottom line has been revised from a loss of 15 cents to earnings of 11 cents in 60 days’ time, calling for a year-on-year surge of more than 100%.
Ritchie Bros. Auctioneers Incorporated RBA: This asset management and disposition company is gaining from technology adoption, cost-containment moves and shift to 100% online transactions.
Ritchie Bros. acquired Rouse Services this month. The transaction is expected to be accretive to its earnings within 12 to 18 months, with minimal synergies.
The company currently carries a Zacks Rank #2. The Zacks Consensus Estimate for 2021 earnings is pinned at $2.01, having moved up 10.1% in the past 60 days. The consensus mark suggests a year-over-year rise of 16.9%. The stock has surged 63.2% in the year-to-date period.
Zacks Top 10 Stocks for 2021
In addition to the stocks discussed above, would you like to know about our 10 top tickers for the entirety of 2021? These 10 are painstakingly hand-picked from over 4,000 companies covered by the Zacks Rank.
They are our primary picks to buy and hold. Start Your Access to the New Zacks Top 10 Stocks >>
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Copart, Inc. (CPRT) : Free Stock Analysis Report
Ritchie Bros. Auctioneers Incorporated (RBA) : Free Stock Analysis Report
Black Knight Financial Services, Inc. (BKI) : Free Stock Analysis Report
LiveRamp Holdings, Inc. (RAMP) : Free Stock Analysis Report
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