Top 5 Business Services Stocks to Strengthen Your Portfolio
The U.S. Business Services space has been benefitting from the strong fundamentals of the economy. Despite facing a record-high interest rate and extremely tight monetary control by the Fed, this sector has provided double-digit returns year to date.
Industries within this sector are mature, with demand for services in good shape. Revenues, income and cash flows are anticipated to gradually reach the pre-pandemic levels, aiding most industry players to pay out stable dividends.
The stuffing industry has been benefiting from a resilient labor market. The industry has been increasingly leveraging technology to streamline processes, enhance efficiency, and provide better services. Utilizing tech-driven recruitment methods such as AI, social media, and Big Data are on the rise.
Video-conferencing tools like Zoom and Microsoft Teams facilitate remote communication, while cloud and blockchain enhance HR data security, ensuring sustained demand for staffing services.
Higher talent costs due to a competitive talent market have been a headwind for the industry. However, the removal of the Trump-era ban on legal immigration is helping service providers thrive with the increased flow of foreign talent.
Our Top Picks
We have narrowed our search to five business services stocks with strong growth potential for the rest of 2023. These stocks have seen positive earnings estimate revisions in the last 60 days. Each of our picks carries either a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The chart below shows the price performance of our five picks in the past three months.
Image Source: Zacks Investment Research
Automatic Data Processing Inc. ADP continues to enjoy a dominant position in the human capital management market through strategic buyouts like Celergo, WorkMarket, Global Cash Card and The Marcus Buckingham Company.
ADP has a strong business model, high recurring revenues, good margins, robust client retention and low capital expenditure. Further, ADP continues to innovate, improve operations, and invest in its ongoing transformation efforts.
Zacks Rank #2 Automatic Data Processing has an expected revenue and earnings growth rate of 6.3% and 11.1%, respectively, for the current year (ending June 2024). The Zacks Consensus Estimate for current-year earnings has improved 1.9% over the last 60 days.
AppLovin Corp. APP is engaged in building a software-based platform for mobile app developers to enhance the marketing and monetization of their apps in the United States and internationally. APP provides technology platform which enables developers to market, monetize, analyze and publish their apps.
Zacks Rank #1 AppLovin has an expected revenue and earnings growth rate of 9.4% and more than 100%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 1.3% over the last 30 days.
Paychex Inc. PAYX looks strong on the back of solid top-line growth and its dominant position in the outsourcing market. PAYX strives to capitalize on the rising opportunities in the professional employer organization industry. PAYX’s improving liquidity makes it less vulnerable to default risk.
Zacks Rank #2 Paychex has an expected revenue and earnings growth rate of 6.8% and 10.1%, respectively, for the current year (ending May 2024). The Zacks Consensus Estimate for current-year earnings has improved 0.4% over the last 30 days.
Copart Inc. CPRT enjoys a leadership position in the automotive auction market, commanding roughly 40% of the market share. CPRT’s competitiveness is supported by its multiple locations and the size of its new facility openings. Expansion initiatives, along with a digital ramp-up, will aid Copart in a fast pickup across the country.
The launch of Copart Max has further stepped up its digital game. Salvage auction volumes are likely to remain elevated amid an increase in vehicle miles traveled and a higher collision frequency. Additionally, aging vehicles and technologically advanced auto parts are proving to be a boon for CPRT. A strong balance sheet with low leverage and high liquidity provides CPRT with financial flexibility.
Zacks Rank #1 Copart has an expected revenue and earnings growth rate of 7.6% and 12.7%, respectively, for the current year (ending July 2024). The Zacks Consensus Estimate for current-year earnings has improved 5.2% over the last 30 days.
Palantir Technologies Inc. PLTR builds and deploys software platforms for the intelligence community in the United States to assist in counterterrorism investigations and operations. PLTR provides Palantir Gotham, a software platform that enables users to identify patterns hidden deep within datasets, ranging from signals intelligence sources to reports from confidential informants.
Zacks Rank #2 Palantir Technologies has an expected revenue and earnings growth rate of 16.3% and more than 100%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 4.5% over the last 60 days.
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Paychex, Inc. (PAYX) : Free Stock Analysis Report
Automatic Data Processing, Inc. (ADP) : Free Stock Analysis Report
Copart, Inc. (CPRT) : Free Stock Analysis Report
AppLovin Corporation (APP) : Free Stock Analysis Report
Palantir Technologies Inc. (PLTR) : Free Stock Analysis Report
