The U.S. services sector, which has witnessed a slowdown lately owing to the ongoing inflationary pressures, is showing signs of recovery. Although new orders remained flat in November, overall services activity picked up, indicating a steady rebound as inflation continues to cool.
The rebound in the services sector activity is also an indication that people are now more confident about the economy making a softer landing than expected earlier, which is making them spend more. Given this situation, business services stocks like
Affirm Holdings, Inc. ( AFRM Quick Quote AFRM - Free Report) , APi Group Corporation ( APG Quick Quote APG - Free Report) , Block, Inc. ( SQ Quick Quote SQ - Free Report) and Rollins, Inc. ( ROL Quick Quote ROL - Free Report) are likely to benefit in the near term. Services Activity Grows
The Institute for Supply Management reported on Dec 4 that its services sector Purchasing Managers’ Index (PMI) rose to 52.7 in November after contracting to 51.8 in October, a five-month low. A reading of anything above 50 suggests an increase in service activity, which accounts for over two-thirds of the economy.
The New Orders Index measured 55.5 in November, unchanged from last month. However, the good sign is that spending on services is increasing. November’s jump was primarily driven by a solid rise in spending on business activity.
People have been spending cautiously over the past few months as higher interest rates are pinching their pockets. The Federal Reserve has hiked interest rates by 525 basis points since March 2022 in a bid to curb multi-decade high inflation. The Fed’s benchmark policy rate now stands in the range of 5.25-5.5%.
Easing inflation over the past year saw the central bank leaving interest rates unchanged in its last two policy meetings. The Fed has said that it is open to more interest rate hikes given that inflation, despite a steep decline, remains above its 2% target.
However, fresh jobs data, which hints at a cooling labor market, has raised hopes that the Fed might be done with its monetary tightening campaign and may start cutting interest rates early next year.
Consumers, too, have been spending freely. Consumer spending rose 0.2% in November, while inflation increased at its slowest pace annually in the past two-and-a-half years. Also, Consumer Confidence came in at 102 in November, surpassing estimates of a rise to 101.
Given this situation, it makes for an ideal opportunity to invest in these four stocks.
Affirm Holdings, Inc. is an emerging growth company. AFRM is building the next-generation platform for digital and mobile-first commerce. Affirm Holdings believes it can reinvent the payment experience.
Affirm Holdings’ expected earnings growth rate for the current year is 111.7%. The Zacks Consensus Estimate for current-year earnings has improved 143.8% over the past 60 days. AFRM presently has a Zacks Rank #2 (Buy). You can see
the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here. APi Group Corporation provides business services of safety, specialty and industrial. APG offers critical pipeline integrity and construction services for energy companies, utilities, public agencies, and contractors, as well as end-to-end fire protection solutions, including design, installation, inspection and service of fire protection systems.
APi Group’s expected earnings growth rate for the current year is 18.1%. The Zacks Consensus Estimate for current-year earnings has improved 4% over the past 60 days. APG presently carries a Zacks Rank #2.
Block, Inc. offers financial and marketing services through its comprehensive commerce ecosystem that helps sellers start, run and grow their businesses. SQ provides payment and point-of-sale services, which include hardware and software to accept payments, streamline operations and analyze business information.
Block’s expected earnings growth rate for the current year is 90%. The Zacks Consensus Estimate for current-year earnings has improved 17.3% over the past 60 days. SQ currently has a Zacks Rank #2.
Rollins, Inc. provides pest and termite control services to residential and commercial customers. ROL offers protection against termite damage, insects and rodents to homes and businesses, including food manufacturers, food service establishments, hotels, transportation companies and retailers.
Rollins’ expected earnings growth rate for the current year is 18.7%. The Zacks Consensus Estimate for current-year earnings has improved 3.5% over the past 60 days. ROL currently carries a Zacks Rank #2.