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Job additions for May came in at their lowest level in five years, raising questions about the chances of a rate hike for the Fed later this month. This surprisingly poor report comes after several bullish economic indicators had made such a move nearly inevitable.

Several market watchers are now of the opinion that the Fed will stay away from changing the status quo this month. If data continues to come in weak, sectors benefitting from low interest rates are likely to gain. Picking utilities and stocks related to the real estate sector would be a good option at this time.

Job Additions Plunge

The U.S. economy created a total of only 38,000 jobs in May, significantly lower than the consensus estimate of 203,000. Nonfarm payrolls registered its lowest increase since Sep 2010. The tally was also considerably lower than March’s downwardly revised job number of 166,000. The Labor Department also revised jobs additions downward in April by 37,000.

Meanwhile, the unemployment rate was 4.7% in May, reaching its lowest level since Nov 2007 and was lower than the consensus estimate of 4.9% and April’s rate of 5%.  Labor force participation rate fell 62.6%, as 458,000 individuals quit jobs or gave up job searches, which is the primary reason behind the decline in the unemployment rate.

Further, the average hourly earnings gained 0.2% or 5 cents in May from the previous month’s figure to $25.59 per hour, in line with the consensus estimate. But, it was lower than April’s 0.4% increase while year-ago gains remained unchanged at 2.5%.

June’s Rate Hike Unlikely

The report all but put paid to hopes of a rate hike announcement in June. Several federal officials had indicated that they were in favor of a rate hike. Some even went as far as saying that putting off one now would be detrimental for the economy. Last week, the Fed chair had also put her weight behind such a move.

However, Yellen had maintained a cautious tone regarding the pace of rate hikes and said that if the Fed “were to raise interest rates too steeply” and “were to contribute to a downturn,” then it would have “limited scope for responding.”

Meanwhile, new threats to the economy are looming on the international horizon. Fears of a Brexit have increased and will only increase as Britain prepares to vote on a referendum on this issue on Jun 23. China’s economy also remains a major cause of concern. Chinese stocks declined today ahead of the release of data on forex reserves and trade which are likely to come in below expectations.

Our Choices

The nature of this month’s jobs report data means that a rate hike in June can more or less be ruled out. If domestic economic indicators continue to remain weak, especially on the jobs front, a low interest rate regime could remain in place for a considerable period.

This is an environment where stocks related to real estate thrive, making them a good investment option at this point. Low rates will also be advantageous for utilities since they have large debt servicing obligations. Adding such stocks to your portfolio would make for a smart move. However, choosing winning stocks often becomes a difficult task.

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 based on a good Zacks Rank and VGM score.

Spark Energy, Inc. (SPKE - Free Report) is an independent retail energy services company operating in the U.S.

Spark Energy has a Zacks Rank #1 (Strong Buy) and a VGM Score of A. The company has expected earnings growth of more than 100% for the current year. The forward price-to-earnings (P/E) ratio for the current financial year (F1) is 13.90, lower than the industry average of 18.30. Its earnings estimate for the current year has improved by 12.1% over the last 30 days.

Artesian Resources Corp. (ARTNA - Free Report) via its subsidiary companies offers water, wastewater and related services across the states of Maryland, Pennsylvania and Delaware.

Artesian Resources has a Zacks Rank #2 (Buy) and a VGM Score of B. The company has expected earnings growth of 5.6% for the current year. It has a P/E (F1) of 21.74, which is lower than the industry average of 24.48. Its earnings estimate for the current year has improved by 3.9% over the last 30 days.

The Home Depot, Inc. (HD - Free Report) is one of the world's largest home improvement retail companies.

Home Depot has a Zacks Rank #2 and a VGM Score of A. The company has expected earnings growth of 16.5% for the current year. Its earnings estimate for the current year has improved by 1.5% over the last 30 days.

Lowe's Companies, Inc. (LOW - Free Report) is a home improvement retailer.

Lowe's Companies has a Zacks Rank #2 and a VGM Score of B. The company has expected earnings growth of 22.6% for the current year. Its earnings estimate for the current year has improved by 1% over the last 30 days. It has a P/E (F1) of 19.83, which is lower than the industry average of 19.93.

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