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4 Stocks to Buy as Services Sector Continues to Grow

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·4 min read
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  • MSCI
  • HCSG
  • SPSC

The services sector has been on the growth path ever since the economy reopened in June 2020, following the slump witnessed during the initial months of the COVID-19 outbreak. And the sector continues to grow. Per the latest reading from the Institute of Supply Management, the services purchasing managers’ index (PMI) for January rose to 58.7% compared to the 57.7% rise in November. 

The services sector has been one of the better performing areas during the pandemic and is likely to keep growing as the economy tries to bounce back. And now with COVID-19 vaccination in full swing, the space is only set to flourish in the near term.

Services Activity Continues to Grow

The PMI reading of 58.7 in December also marks the eighth straight month of growth in business activity and once again proves the massive strength in the services sector. Moreover, the sector has grown in 130 months in the past 132.

The services sector had contracted in the months of April and May when the reading declined to 41.8% and 45.4%, respectively, owing to the coronavirus outbreak that brought business almost to a standstill.

Per the ISM report, maximum growth was witnessed in the real estate, management of companies & support services; construction; wholesale trade; rental & leasing; finance & insurance; transportation & warehousing; agriculture, health care & social assistance; forestry and fishing & huntingindustries.

Tech Sector Driving Services Activity Growth

The pandemic saw an increasing number of people working, learning and shopping from home. This made them depend more on technology.

Increasing dependence on technology also has made many companies shift their focus toward cloud business. Thus technology services became one of the mainstays for business services. Per the ISM report, Business Activity Index increased 59.9% in January from 58% a month earlier. This also marks the eighth consecutive month of increase in business activity. Also, the Services Employment Index increased to 55.2% in January from a decline to 48.7% in December, reflecting a jump of 6.5%.

Our Choices 

The services sector is poised to grow in the coming months as more people are regaining their confidence with the pace of COVID-19 vaccination finally picking up and new cases showing a decline. Also, another round of stimulus, which recently got sanctioned, will help the economy recover faster. Given this situation,it would be ideal to invest in these five stocks.

MSCI Inc MSCI provides investment decision support tools, including indexes; portfolio construction and risk management products and services; environmental, social and governance research and ratings; and real estate research, reporting and benchmarking offerings.

The company’s expected earnings growth rate for next year is 16%. The Zacks Consensus Estimate for current-year earnings has improved 8.5% over the past 60 days. MSCI has a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Black Knight Financial Services, Inc. BKI engages in the provision of integrated technology, workflow automation and data and analytics to the mortgage and real estate industries, through its subsidiaries. It operates through the Technology and Data and Analytics business segments. 

The company’s expected earnings growth rate for next year is 4%. The Zacks Consensus Estimate for current-year earnings has improved 0.5% over the past 60 days. Black Knight Financial Services has a Zacks Rank #2.

Healthcare Services Group, Inc. HCSG provides housekeeping, laundry, linen, facility maintenance and food services to the health care industry, including nursing homes, retirement complexes, rehabilitation centers and hospitals. 

The company’s expected earnings growth rate for next year is 40.2%. Its shares have gained 13.3% in the past 30 days. Healthcare Services Group carries a Zacks Rank #2.

SPS Commerce, Inc. SPSC is a provider of on-demand supply chain management solutions, providing integration, collaboration, connectivity, visibility and data analytics to its customers worldwide. 

The company’s expected earnings growth rate for the current year is 15.6%. Its shares have gained 16% in the past three months. SPS Commerce carries a Zacks Rank #2.

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