The U.S. economy has sprung back to life, with companies mostly shrugging off the negative impact of the coronavirus-induced economic downturn. U.S. firms, in fact, are now seeing increasing demand as they reopen from the shutdowns imposed by the government to curb the spread of the deadly virus in the spring and early summer. Notably, the economy has been ignoring the impact of the sharp rise in new coronavirus infections, especially in the month of July.
According to data firm IHS Markit, its composite purchasing managers index that measures both manufacturing and service activities, jumped to 54.7 in August from 50.3 in July, and registered an 18-month high. Any reading above 50 indicates expansion, while a reading below 50 signifies contraction.
The index of manufacturing activity, in particular, increased to 53.6 from 50.9 in July. The service activity index came in at 54.8 from 50. Sian Jones, economist at IHS Markit, added that “the renewed increase in sales among service sector firms was welcome news following five months of declines.”
The IHS Markit report, nonetheless, confirmed that an uptick in demand for services and an increase in marketing activity helped overall business activity to improve considerably. Increase in sales among manufacturing and service sector firms was led by a sharp upturn in new export orders, the report added.
Talking about manufacturing, factory activity expanded in July for the third month in a row. Per the Institute of Supply Management (ISM) its manufacturing index rose to 54.2% in July from 52.6% in June, marking the highest level in 15 months. Analysts, by the way, were expecting a reading of 53.6%. Strength in new orders, production and employment drove the gains.
Economic activity in the non-manufacturing sector also expanded in July for the second month in a row. The non-manufacturing index came in at 58.1% in July, topping analysts’ estimate of 55%. It was also higher than the June reading of 57.1%, added ISM.
The non-manufacturing sector, thus, saw growth for the second straight month after contraction in April and May, preceded by a 122-month of uninterrupted expansion. It’s worth pointing out that the non-manufacturing sector accounts for nearly 90% of the economy, and a non-manufacturing index reading above 48.5% indicates expansion of the broader economy.
Anthony Nieves, Chair of the ISM Services Business Survey Committee, said that “the past relationship between the Services Index and the overall economy indicates that the Services Index for July (58.1 percent) corresponds to a 3.3-percent increase in real gross domestic product on an annualized basis.”
5 Solid Buys
Given the promising spike in business activity, investors may consider buying sound stocks from both the manufacturing and service sectors. 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).
Tennant Company TNC designs, manufactures, and markets floor cleaning equipment. The company currently has a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings has risen 37.2% over the past 60 days. The company’s expected earnings growth rate for the next quarter and year is 15.6% and 26.4%, respectively.
Graco Inc. GGG designs, manufactures, and markets systems and equipment used to move, measure, control, dispense, and spray fluid and powder materials. The company currently has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has moved up 18.9% over the past 60 days. The company’s expected earnings growth rate for the next year is 15.9%.
FTI Consulting, Inc. FCN is a business advisory firm aimed at helping organizations manage change, mitigate risk and resolve financial, legal, operational, political and regulatory, reputational and transactional disputes. The company currently has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has moved 2.2% north over the past 60 days. The company’s expected earnings growth rate for the next quarter and year is 82.5% and 16.8%, respectively. You can see the complete list of today’s Zacks #1 Rank stocks here.
CoreLogic, Inc. CLGX is a leading provider of property information, analytics, and data-enabled software platforms and services. The company currently has a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings has risen 26.6% over the past 60 days. The company’s expected earnings growth rate for the current year is 29.7%.
Artisan Partners Asset Management Inc. APAM is an independent investment management firm that provides a broad range of U.S., non-U.S. and global equity investment strategies. The company currently has a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings has moved 27.2% up over the past 60 days. The company’s expected earnings growth rate for the current and next year is 12% and 9.4%, respectively.
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