The U.S. economy added 164,000 jobs last month, led by the professional and business services sector. The sector added 54,000 jobs in April and 518,000 in the past 12 months, the highest among all sectors.
Notably, the current 18-year low unemployment rate of 3.9% recorded in the month of April further raises optimism about the economy.
What Does This Imply?
The business services sector is gaining strength because it is firmly tied to manufacturing and non-manufacturing activities that are currently benefiting from the all-round strength in the economy.
While the economy continues to create new jobs, a tight labor market is compelling companies to pay higher to attract and retain employees. Most economists think that job additions will continue and the unemployment rate will decline further.
Some Numbers That Validate Growth
Economic activity in the manufacturing sector expanded in April as the PMI measured by ISM touched 57.3%. This shows strong growth in manufacturing for the 20th consecutive month, driven by continued increase in new orders, production activity and employment and inventories. Of the 18 manufacturing industries, 17 reported growth in April.
As far as the non-manufacturing sector is concerned, NMI was 56.8% in April, recording the 99th consecutive month of expansion. The Non-Manufacturing Business Activity Index reached 59.1%, growing for the 105th consecutive month. All 18 non-manufacturing industries reported growth.
Although U.S. economic growth cooled in the first quarter to an annualized pace of 2.3% after averaging higher than 3% in the previous three quarters, the economy is likely to rebound in the coming quarters.
Lower corporate and individual tax rates along with increased government spending are expected to push annual economic growth to the 3% target.
Some More Encouraging Numbers
The Business Services sector has performed well in the past year compared with the benchmark. It has gained 21.6%, significantly outperforming the S&P 500’s rally of 11.3% in the said time frame.
According to the latest Earnings Outlook, S&P 500 members from the sector have already reported financial numbers and recorded top- and bottom-line growth of 22.5% and 6.8%, respectively in the first quarter of 2018. The report also states that 80.8% surpassed revenue estimates and 88.5% outperformed on the bottom line front.
4 Key Picks
With things going in favor of business services, adding stocks from the sector looks like a smart move at this point.
With the help of the Zacks Stock Screener, we have zeroed in on four promising stocks from the sector. These stocks have a favorable Zacks Rank #1 (Strong Buy) or 2 (Buy) along with a VGM Score of A or B and have solid expected earnings growth rate for the current quarter and year.
You can see the complete list of today’s Zacks #1 Rank stocks here.
Let’s have a look at the picks:
Based in New Jersey, Avis Budget Group, Inc. (CAR - Free Report) is a vehicle rental service provider.
Avis Budget has a Zacks Rank #1 and a VGM Score of A. The company has expected earnings growth rate of 90% and 26.3%, respectively, for the current quarter and year.
The Zacks Consensus Estimate for the current quarter improved 3.6% to 57 cents per share over the last 30 days. For the current year, the consensus estimate moved up 9.4% to $3.60.
The company’s impressive earnings surprise history is noteworthy. It surpassed the consensus estimate in three of the previous four quarters, delivering an average positive surprise of 35.4%.
Based in California, Robert Half International Inc. (RHI - Free Report) is one of the largest human resource consulting firms in the United States.
Robert Half carries a Zacks Rank #2 and has a VGM Score of A. The company’s expected earnings growth rate is 32.8% and 29.6%, respectively, for the current quarter and year.
The Zacks Consensus Estimate for the current quarter improved 4.9% to 85 cents per share over the last 30 days. For the current year, the consensus estimate moved up 4.3% to $3.37.
The company’s earnings surpassed the consensus estimate in two of the previous four quarters, with an average positive surprise of 2.4%.
Based in California, Korn/Ferry International (KFY - Free Report) is the world's leading and largest executive recruitment firm with the broadest global presence in the executive recruitment industry.
Korn/Ferry has a Zacks Rank #2 and a VGM Score of A. The company has expected earnings growth rate of 12.9% and 17.4%, respectively, for the current quarter and year.
The Zacks Consensus Estimate for the current quarter and year remained unchanged at 70 cents and $2.63 per share, respectively over the last 30 days.
Also, the company has an impressive earnings surprise history. It surpassed the consensus estimate in the previous four quarters, delivering an average positive surprise of 8.1%.
Based in New Jersey, The Dun & Bradstreet Corporation (DNB - Free Report) provides commercial data, analytics and insights for business.
Dun & Bradstreet has a Zacks Rank #2 and a VGM Score of B. The company has expected earnings growth rate of 7.1% and 15.1%, respectively, for the current quarter and year. The Zacks Consensus Estimate for the current year moved up 4.3% to $8.47 per share.
The company’s impressive earnings surprise history is noteworthy. It surpassed the consensus estimate in each of the previous four quarters, with an average positive surprise of 14.9%.
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