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5 Top Stocks to Buy on a Strong U.S. Services Sector

Swarup Gupta

On Sep 5, U.S. markets rose sharply on fresh hopes that the country would return to the negotiating table with China. The two countries are involved in a long-running trade dispute which has roiled China’s economy and dealt severe damage to the U.S. farming and manufacturing sectors.

So what’s keeping the domestic economy afloat even as a trade deal remains elusive? While the U.S. consumer remains confident, fresh economic data indicates that the service sector is prospering while the rest of the economy is grappling with the trade war. This is why it makes sense to invest in service sector stocks at this time.

ISM Services Index Surges in August

In August, the Institute of Supply Management’s services gauge rebounded from a three-year low of 53.7% in July to hit 56.4% in August. Of the 17 industries that the ISM tracks, 16 experienced expansion during the month. An executive being interviewed for the survey went so far as to say that the “summer doldrums appear to be over.”

Incidentally, any level above 50 is a good economic sign. And a reading above 55 is believed to be nothing short of exceptional. Both production and new orders notched up strong gains over the month, exceeding the 60% mark. This is a clear indication that demand remains resilient given the hope that sales will improve in the months to come.

Other Indicators Reflect Services’ Strength

Several other major economic gauges also indicate that services are keeping the economy afloat even as the American industry grapples with the fallout of the trade war. The Fed’s latest Beige Book survey reveals that as of August, non-financial services were improving or staying steady through the United States.

Even as manufacturing and agriculture remain major worries for the economy, most business owners “remain optimistic about the near-term outlook.” And this sentiment prevails despite the fact that uncertainty over U.S.-China trade relations continues to roil investor sentiment almost on a daily basis.

Meanwhile, the latest ADP report showed that private sector firms added the highest number of jobs in four months in August. Payrolls advanced by 195,000 following a downwardly revised increase of 142,000 in July. Service providers led job gains, adding 18400 positions in August.

Our Choices

Despite long-running trade war concerns, the U.S. economy remains in a relatively good shape. This is largely attributable to the services sector, since manufacturing and agriculture are bearing the brunt of trade tensions.

This is why investing in service sector stocks remains a prudent choice. 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, each of which has a Zacks Rank #1 (Strong Buy) and good VGM Score. You can see the complete list of today’s Zacks #1 Rank stocks here.

Cardtronics plc CATM provides ATM services primarily in North America and Europe.

Cardtronics has a VGM Score of A. The company’s projected growth rate for the current year is 5.1%. The Zacks Consensus Estimate for the current year has improved by 8.2% over the past 30 days.

Xperi Corporation XPER is a product and technology licensing company which manufactures semiconductors and related products.

Xperi has a VGM Score of A. The Zacks Consensus Estimate for the current year has improved by 15.2% over the past 30 days.

CPI Card Group Inc. PMTS is engaged in financial card production and related services under the VISA, MasterCard, American Express and Discover payment brands.

CPI Card Group has a VGM Score of A. The company’s projected growth rate for the current year is 29.6%. The Zacks Consensus Estimate for the current year has improved by 45.7% over the past 30 days.

Clean Harbors, Inc. CLH is a leading provider of environmental, energy and industrial services in North America.

Clean Harbors has a VGM Score of B. The company’s projected growth rate for the current year is 53.7%. The Zacks Consensus Estimate for the current year has improved by 6.6% over the past 60 days.

FTI Consulting Inc. FCN is a global business advisory firm aimed at helping organizations manage change, mitigate risk and resolve financial, legal, operational, political and regulatory, reputational and transactional disputes.

FTI Consulting has a VGM Score of B. The company’s projected growth rate for the current year is 35.4%. The Zacks Consensus Estimate for the current year has improved by 27.8% over the past 60 days.

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Click to get this free report Cardtronics PLC (CATM) : Free Stock Analysis Report Tessera Holding Corporation (XPER) : Free Stock Analysis Report FTI Consulting, Inc. (FCN) : Free Stock Analysis Report CPI Card Group Inc. (PMTS) : Free Stock Analysis Report Clean Harbors, Inc. (CLH) : Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research