5 Stocks to Make the Most of an Expanding US Service Sector
In recent times, economic activity in the non-manufacturing sector continued to pick up pace. The service side of the economy has expanded so far this year, with improvement in new orders, business activity and employment pointing toward solid underlying strength.
This calls for investing in sound service-oriented companies such as Shift4 Payments FOUR, Carrols Restaurant Group TAST, Heidrick & Struggles International HSII, Broadridge Financial Solutions BR and Charles River Associates CRAI.
U.S. Service Sector Humming
The non-manufacturing index (NMI) of the Institute for Supply Management scaled upward from July’s reading of 52.7% to 54.5% in August. Analysts, however, projected the NMI to slip to 52.5% last month.
The barometer of the U.S. service sector saw uninterrupted expansion for the eighth successive month following a reading of 49.2% in December 2022. Notably, any reading above the 50% threshold indicates expansion. In reality, the service side of the economy has expanded in 38 of the last 39 months, and all 13 non-manufacturing industries reported growth in August.
It's worth pointing out that the service sector, which predominantly provides services rather than the production of goods, has time and again contributed to the bulk of economic activity. Thus, with the service side of the economy chugging along, the broader economy is well-poised to grow steadily for the rest of the year.
New Orders, Business Activity Rise
The new orders index increased 2.5% month over month to 57.5% in August. Thanks to a slew of new customers, the number of orders improved and indicated strength in the service sector. The new orders index expanded for the eighth month in August.
Business expectations in most of the service sector industries also remained encouraging. The business activity index came in at 57.3% in August, an uptick of 0.2% from July’s reading of 57.1%. Business activity expanded for the 39th straight month.
Employment Activity Improves
Similar to expansion in new orders and business activity, employment picked up in most of the service sector industries in August. The employment index came in at 54.7% in August from July’s figure of 50.7%.
After contracting in May, employment activities picked up and expanded for the third consecutive month in August. After all, the labor market continued to display strength despite higher interest rates and elevated inflation.
Top 5 Gainers
Given the promising developments in the service sector, investors may consider buying solid stocks that provide various services. We have, thus, selected five stocks that might make meaningful additions to your portfolio. These stocks flaunt a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Shift4 Payments is a provider of integrated payment processing and technology solutions. FOUR currently has a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings has increased nearly 15% over the past 60 days. The company’s expected earnings growth for the current year is 93.5%.
Carrols Restaurant Group is the largest BURGER KING franchisee in the United States. TAST currently has a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings has increased 3,800% over the past 60 days. The company’s expected earnings growth for the current year is 152.9%.
Heidrick & Struggles International provides executive search, consulting and on-demand talent services. HSII currently has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has increased 3.4% over the past 60 days. The company’s expected earnings growth for next year is 7.6%.
Broadridge Financial Solutions is a global financial technology company that offers investor communications and technology-driven solutions. BR currently has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has increased 3.5% over the past 60 days. The company’s expected earnings growth for the current year is 8.8%.
Charles River Associates is one of the leading global consulting firms. CRAI currently carries a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has increased 2.2% over the past 60 days. The company’s expected earnings growth for next year is 12.7%.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Broadridge Financial Solutions, Inc. (BR) : Free Stock Analysis Report
Charles River Associates (CRAI) : Free Stock Analysis Report
Carrols Restaurant Group, Inc. (TAST) : Free Stock Analysis Report
Heidrick & Struggles International, Inc. (HSII) : Free Stock Analysis Report
Shift4 Payments, Inc. (FOUR) : Free Stock Analysis Report
