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Pick Up in Service Sector Activity a Boon for These 5 Stocks

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The service side of the U.S. economy expanded at a faster-than-anticipated pace in November, banking on an uptick in business activity, while employment picked up despite persistent price pressures.

Additionally, an increase in new orders pointed to underlying strength in the non-manufacturing sector. Thus, at present, placing bets on service-oriented companies like Barrett Business Services (BBSI - Free Report) , Shift4 Payments (FOUR - Free Report) , Carrols Restaurant Group (TAST - Free Report) , Brown & Brown (BRO - Free Report) , and Limbach (LMB - Free Report) seems prudent.

U.S. Service Sector Humming

The non-manufacturing index (NMI) increased to 52.7% in November from October’s five-month low reading of 51.8% and topped analysts’ expectations of a rise to 52.4%, per the Institute of Supply Management.

The barometer of the service side of the economy witnessed expansion for the 11th straight month in November, following a contraction in December 2022. Any reading above the 50% mark signifies expansion.

All 15 non-manufacturing industries posted growth last month and have significantly contributed to the bulk of economic activity, thereby crushing concerns about an impending recession.

New Orders, Business Activity Rise

Thanks to an improvement in new orders for equipment and components, the new orders index came in at 55.5% in November, the same as in October. The new orders index expanded for the 11th straight month following a contraction in December 2022.

The business environment in the service sector also remained favorable. The business activity index increased to 55.1% in November from October’s reading of 54.1%. Business activity in the service sector has recovered considerably since the pandemic lows.

Employment Subindex Ticks Up

Employment in the service sector improved in November for the sixth successive month following a contraction in May. The employment index increased to 50.7% last month from 50.2% in the prior month.

The labor market continues to be very competitive. However, it remains healthy despite elevated inflation.

Top 5 Gainers

Banking on the encouraging developments in the non-manufacturing sector, astute investors should invest in sound service-oriented companies. We have, thus, selected five such stocks that might make meaningful additions to your portfolio. These stocks flaunt a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Barrett Business Services provides staff leasing, contract staffing, site management and temporary staffing arrangements. BBSI currently has a Zacks Rank #1.

The Zacks Consensus Estimate for its current-year earnings has moved up 4.7% over the past 60 days. BBSI’s expected earnings growth rate for the current year is 8.6%.

Shift4 Payments is a provider of integrated payment processing and technology solutions. Shift4 Payments currently has a Zacks Rank #1.

The Zacks Consensus Estimate for its current-year earnings has moved up 4.7% over the past 60 days. FOUR’s expected earnings growth rate for the current year is 110.1%.

Carrols Restaurant Group is the largest BURGER KING franchisee in the United States. Carrols Restaurant currently has a Zacks Rank #1.

The Zacks Consensus Estimate for its current-year earnings has moved up 13.5% over the past 60 days. TAST’s expected earnings growth rate for the current year is 160%.

Brown & Brown markets and sells insurance products and services. Brown & Brown currently has a Zacks Rank #2.

The Zacks Consensus Estimate for its current-year earnings has moved up 4.2% over the past 60 days. BRO’s expected earnings growth rate for the current year is 21.1%.

Limbach provides mechanical, plumbing, air conditioning, heating, building automation, electrical, and control systems. Limbach currently has a Zacks Rank #1.

The Zacks Consensus Estimate for its current-year earnings has moved up 28.7% over the past 60 days. LMB’s expected earnings growth rate for the current year is 173.4%.

 

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