The business services sector is a major beneficiary of the broader economy and manufacturing and non-manufacturing (service) activities. While service activities are currently in good shape, their positive impacts on the sector are being partially offset by contracting economic activity in the manufacturing sector.

The Services PMI measured by the Institute for Supply Management has stayed above the 50% mark for the past seven consecutive months, indicating continued expansion. The manufacturing PMI stayed below the 50% mark for the past nine consecutive months.

The broader economy is showing signs of revival. According to the "advance" estimate released by the Bureau of Economic Analysis, GDP grew at an annual rate of 2.4% in the second quarter of 2023 compared with the 2% growth in the first quarter.

The global macroeconomic environment, strong demand for services, improving supply chains, a less-hawkish stance from the U.S. Federal Reserve, and strong digital adoption are currently some of the crucial drivers of the business services sector, which are decreasing the negative impacts of labor market constraints and higher operational expenses.

Sector-specific factors acting as tailwinds are the essentiality of certain services like waste management, the rise in demand for risk mitigation and consulting services, increased expertise in improving operational efficiency and lower costs, successful work-from-home models and digital transformation.

The pandemic has changed the way players have conducted business and delivered services. Currently, the key focus within the industry is on channelizing money and efforts toward more effective operational components, such as technology, digital transformation, data-driven decision-making and enhanced cybersecurity.

The Current Backdrop Offers Some Great Picks

Given the promising developments in business services, investors may consider buying stocks that possess fundamental strength. Our research shows that stocks with a VGM Score of A or B, when combined with a Zacks Rank #1 (Strong Buy) or 2 (Buy), offer the best investment opportunities. You can see the complete list of today’s Zacks #1 Rank stocks here.

Aptiv (APTV Quick QuoteAPTV - Free Report) : The provider of electrical, electronic and safety technology solutions for automotive and commercial vehicles carries a Zacks Rank #2 and a VGM Score of A.

Earnings and revenues for 2023 are expected to grow 39% and 14.8%, respectively, year over year. The Zacks Consensus Estimate for Aptiv’s 2023 EPS has increased 10.2% in the past 30 days to $4.74. Shares of the company have gained 15.4% in the past three months.

Clean Harbors (CLH Quick QuoteCLH - Free Report) : The environmental and industrial services provider carries a Zacks Rank #2 and a VGM Score of B.

Earnings for 2023 are expected to be in line with the year-ago quarter while revenues are anticipated to go up 5.3% year over year. The Zacks Consensus Estimate for Clean Harbors’ 2023 EPS has increased 2% in the past 60 days to $7.14. Shares of the company have gained 20.6% in the past three months.

ABM Industries (ABM Quick QuoteABM - Free Report) : The provider of integrated facility, infrastructure and mobility solutions carries a Zacks Rank #2 and a VGM Score of B.

The current Zacks Consensus Estimate for revenues indicates a 3.5% year-over-year increase. The Zacks Consensus Estimate for ABM’s 2023 EPS has increased slightly in the past 60 days to $3.51. Shares of the company have gained 3.7% in the past three months.

Publicis (PUBGY Quick QuotePUBGY - Free Report) : The company is a provider of marketing, communications and digital business transformation services. It carries a Zacks Rank #2 and a VGM Score of A.

The Zacks Consensus Estimate for the company’s 2023 EPS has increased 6.1% to $1.92 over the past 60 days. Shares of Publicis have gained 6.4% in the past three months.