People have once again started spending on services, helping the sector grow despite inflationary pressures. In fact, economic activity in the U.S. business services sector has been growing ever since the economy started reopening after the COVID-induced lockdown in 2020.
According to the latest report from the Institute of Supply Management (ISM) Services Report, business activity increased again in June in the United States, reflecting the underlying strength in the economy. Given this situation, business services stocks like ZipRecruiter, Inc. ZIP, Everi Holdings Inc. EVRI, Avis Budget Group, Inc. CAR and FactSet Research Systems Inc. FDS are likely to benefit in the near term.
Business Services Activity Expands
According to the latest reading from the ISM, the services purchasing managers’ index (PMI) came up with a reading of 57.1 in June. Although the reading is 0.6% lower than May’s reading, services activity has now grown for 25 consecutive months, reflecting the strength in the economy. A reading of anything above 50 suggests an increase in service activities.
June’s growth once again reflects that despite rising prices which are denting the confidence of people, they have been spending on services. Also, geopolitical tensions have been a growing cause of concern but that hasn’t impacted spending on services.
The Business Activity Index came up with a reading of 56.1%, increasing 1.6% from the reading of 55.9% recorded in May. The Supplier Deliveries Index was 61.9%, up 0.6% from May’s reading of 61.3%.
Also, the New Orders Index contracted to 55.6% in June, down 2% from May’s reading of 57.6%. However, new orders jumped for the 25th straight month after two months of contraction and a prior stretch of 128 months of expansion.
Services Sector Going Strong
Over two-thirds of all economic activity in the United States is in the services sector, and the economy has been growing steadily for the previous 25 months, indicating that things are looking up. Services activity has now expanded in 147 out of the past 149 months.
Due to the COVID-induced shutdown, the economy nearly came to a complete halt during the months of March and April 2020. However, since then, the services sector has continued to grow and has done so every month.
A big cause of concern over the past several months has been rising costs and interest rates coupled with a labor shortage. At the same time, personal income has been on the rise, allowing people to spend.
Moreover, during the peak of the pandemic, people spent more on capital goods as they were working and learning from home. However, people have once again resumed spending more on services as the economy continues to recover. This has been aiding the business services sector.
Also, restaurants and other places of recreation have begun to operate at full capacity, which is further helping the services sector to expand. Thus, as the economy further reopens, services activity will continue to grow.
Our Choices
We have shortlisted four business services stocks that are likely to benefit in the near term. Each of these stocks carries a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
ZipRecruiter, Inc. provides employment services. ZIP offers recruiting, hiring, job boards, posting, web application, candidate screening, applicant tracking and job alerts services. ZipRecruiter operates principally in the United States and the United Kingdom.
ZipRecruiter’s expected earnings growth rate for the current year is more than 100%. The Zacks Consensus Estimate for current-year earnings has improved 64.3% over the past 60 days. ZIP has a Zacks Rank #2.
Everi Holdings Inc. is a holding company, which operates through subsidiaries, Global Cash Access, Inc. and Multimedia Games Holding Company, Inc. EVRI’s segments include Games and Payments.
Everi Holdings’ expected earnings growth rate for the current year is more than 100%. The Zacks Consensus Estimate for current-year earnings has improved 3.1% over the past 60 days. EVRI carries a Zacks Rank #2.
Avis Budget Group, Inc. operates as a leading vehicle rental operator in North America, Europe and Australasia, with an average rental fleet of nearly 650,000 vehicles. CAR is a leading global provider of mobility solutions through its three most recognized brands — Avis, Budget and Zipcar. Avis Budget Group has licensees in approximately 175 countries throughout the world.
Avis Budget Group’s expected earnings growth rate for the current year is 74.7%. The Zacks Consensus Estimate for current-year earnings has improved 20.3% over the past 60 days. CAR sports a Zacks Rank #1.
FactSet Research Systems Inc. is a leading provider of integrated financial information, analytical applications and industry-leading service for the global investment community. FDS offers information to investment professionals like portfolio managers, wealth managers, research and performance analysts, risk managers, research professionals, investment research professionals, investment bankers, risk and performance analysts, wealth advisors and fixed income professionals through its analytics, service, content and technology.
FactSet Research Systems’ expected earnings growth rate for the current year is 19.8%. The Zacks Consensus Estimate for current-year earnings has improved 3.2% over the past 60 days. FDS has a Zacks Rank #2.
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