America’s equity market rally seems to be in trouble. After starting the year on a strong note, stocks have been faced with several roadblocks, the latest of which is the ambiguity over trade negotiations. The Dow has been in negative territory since late February and may remain there unless a trade deal comes through.
However, services stocks continue to present a lucrative opportunity. The primary factor powering the sector at this point is a resilient U.S. economy with a strong jobs’ market. Incidentally, services provide 80% of all private-sector jobs.
Additionally, several services sector stocks sport strong and stable dividends. This offers investors steady income flows during volatile trading conditions. They also offer diversification across a variety of industries. This is why it makes sense to invest in services stocks at this point.
Record Deficit in Goods, Surplus in Services
Fresh data released earlier this month conclusively proves that Trump’s protectionist stance has failed to address the U.S. trade balance problem. In 2018, the U.S. trade deficit in goods touched a record level of $891 billion. This is nearly $100 billion more than the record achieved in 2015 during the Obama era.
Conversely, the United States runs a massive surplus in services. This amounted to nearly $270 billion in 2018. It comes as no surprise then that services finds no place in the current U.S.-China trade negotiations.
Like most mature, developed countries, the United States is essentially a services-based economy. Private services make up almost 90% of U.S. GDP and account for more than 80% of all the private sector employment generated.
So essentially, services draw their power from the state of the U.S. economy, which at this point has shown great resilience in the face of a global slowdown. And this dynamic makes a very strong case for services.
Bullish Services Sector Data, Resilient Economy
The ISM services index increased from 56.7 in January to 59.7 in February. The reading also exceeded the consensus estimate of 57.3 by a significant margin. In effect, the services sector recovered from a lackluster January and expanded for the 109th straight month. Notably, all 18 non-manufacturing industries, which make up the sector, experienced expansion.
And despite talk of a slowdown, the second estimate for fourth-quarter GDP revealed that the U.S. economy had expanded by 2.6% during this period. This follows an extremely good 2018 for the economy during which it expanded at an annual pace of 3% for the first time since 2005.
Further, bolstering the case against a dramatic economic slowdown is the latest data on consumer sentiment. The preliminary reading for the University of Michigan’s consumer sentiment gauge increased from 93.8 to 97.8 in March.
This indicates that the economy has likely successfully recovered from a government shutdown-induced slump which caused the gauge to fall to 91.2 in January, its lowest level since October 2016. With the economy in good shape, the case for services becomes even more bullish.
The equity market rally has run into trouble due to uncertainty over the progress of U.S.-China trade negotiations, which are essentially for a dispute over the flow of goods. However, it is crucial to note that the United States holds a clear edge when it comes to services. Also, services contribute a major chunk of GDP and the lion’s share of private sector jobs.
Further, the U.S. economy is in good shape and shows no imminent signs of a slowdown. This is why it makes sense to invest in services sector stocks that also promise strong and stable dividends. This helps to ride out the bumps created by ongoing trade disputes. 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 based on a good Zacks Rank and VGM Score.
Robert Half International Inc. RHI is one of the world’s largest providers of temporary staffing, project professionals and permanent placement services to the finance and accounting industries.
Robert Half International has a VGM Score of B. The company’s expected earnings growth for the current year is 13%. The stock has a dividend yield of 1.9%. The stock sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
Virtu Financial, Inc. VIRT offers market making and liquidity services via its proprietary technology platform.
Virtu Financial has a Zacks Rank #2 (Buy) and VGM Score of A. The Zacks Consensus Estimate for the current year has improved by 3.6% over the last 60 days. The stock has a dividend yield of 3.9%.
The Interpublic Group of Companies, Inc. IPG together with its subsidiaries provides advertising and marketing services worldwide.
Interpublic Group carries a Zacks Rank #2 and has a VGM Score of A. The Zacks Consensus Estimate for the current year has improved by 2.4% over the last 30 days. The stock has a dividend yield of 4.2%.
CH Robinson Worldwide Inc. CHRW provides freight transportation services and logistics solutions to companies across a range of industries.
CH Robinson carries a Zacks Rank #2 and has a VGM Score of B. The company’s expected earnings growth for the current year is 5.9%. The stock has a dividend yield of 2.2%.
AXA Equitable Holdings, Inc. EQH provides financial services, which include investment management insights and advisory solutions.
AXA Equitable Holdings carries a Zacks Rank #2 and has a VGM Score of B. The company’s expected earnings growth for the current year is 1.2%. The stock has a dividend yield of 2.5%.
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C.H. Robinson Worldwide, Inc. (CHRW) : Free Stock Analysis Report
Interpublic Group of Companies, Inc. (The) (IPG) : Free Stock Analysis Report
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Robert Half International Inc. (RHI) : Free Stock Analysis Report
AXA Equitable Holdings, Inc. (EQH) : Free Stock Analysis Report
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