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5 Stocks to Watch as Services Sector Continues to Expand

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The services sector in the United States made a comeback from June 2020 onward following the COVID-19 led slump toward the beginning of 2020. Per the latest reading from the Institute for Supply Management (“ISM”), the services purchasing managers’ index (“PMI”) for December was 57.2% compared to 55.9% reported in November. Notably, this marked the seventh consecutive month of expansion in services activity in the country.

The services sector had contracted during the months of April and May last year, registering readings of 41.8% and 45.4%, respectively. Lockdowns across the whole country toward the beginning of 2020 put business activities to a halt and hence, the services PMI registered declines during those two months. However, a gradual resumption of activities allowed the index to witness growth in the months that followed.

The latest report from the ISM stated that services industries which witnessed growth during December included management of companies and support services, transportation and warehousing, finance and insurance, utilities, professional, scientific and technical services, wholesale trade, retail trade, healthcare and social assistance, and so on. Notably, as the pandemic raged on, businesses became increasingly more dependent on technology services among others as they required a digital transformation to continue operations from home. This work-from-home trend is likely to continue in 2021 with Global Workplace Analytics mentioning in a report that by the end of 2021, for multiple days of the week, 25-30% of the workforce will continue to work from home.

Among other indexes, the Business Activity Index was reported at 59.4% in December compared to 58% in November, marking the seventh consecutive month of gains. Meanwhile, the New Orders Index also grew for seven successive months, and was reported at 58.5% in December compared to 57.2% reported in November.

Going forward, an improving economy will favor continued growth of the services sector. Notably, The World Bank estimates that the U.S. gross domestic product will increase 3.5% in 2021. Moreover, the vaccination process has already started in the United States which should allow the economy to fully reopen ahead. Meanwhile, the economy also recently received a stimulus boost as President Donald Trump signed the long-awaited fiscal relief bill of $900 billion, as quoted in a Washington Post article.

5 Stocks to Watch

The services sector in the United States seems poised to witness further growth ahead, especially with the rollout of vaccines. Hence, this seems to be a good opportunity to keep an eye on services sector stocks that have the potential to do well. We have selected five such stocks that carry a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.

Rocket Companies (RKT - Free Report) is a Detroit-based holding company consisting of personal finance and consumer service brands including Rocket Mortgage, Rocket Homes, Rocket Loans, Rocket Auto, Rock Central and so on. The company currently has a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings increased 16.9% over the past 60 days. The company’s expected earnings growth rate for the next five years is 10%.

APi Group Corporation (APG - Free Report) provides commercial life safety solutions and industrial specialty services primarily in the United States. The company currently has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings increased 8.4% over the past 60 days. The company’s expected earnings growth rate for the current year is 14.2%.

Black Knight, Inc. (BKI - Free Report) provides integrated software, data, and analytics solutions in the United States. The company currently has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings increased 4.8% over the past 60 days. The company’s expected earnings growth rate for the current year is 15.5%.

IBEX Limited (IBEX - Free Report) provides end-to-end technology-enabled customer lifecycle experience solutions in the United States. The company serves telecommunications and cable, technology, retail, healthcare, financial services, and utilities markets. It currently has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings increased 9.5% over the past 60 days. The company’s expected earnings growth rate for the current year is 23.8%.

DocuSign, Inc. (DOCU - Free Report) provides cloud-based software in the United States and internationally. The company provides e-signature solution that enables businesses to digitally prepare, execute, and act on agreements. It currently has a Zacks Rank #3. The Zacks Consensus Estimate for its next-year earnings increased 28.2% over the past 60 days. The company’s expected earnings growth rate for next year is 47.3%.

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