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ISM Services Index Rises for 100th Straight Month: 5 Picks

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In the latest signal that the U.S. economy is starting to pick up the pace, the services sector grew at a faster clip in May. This marked the 100th successive month of expansion for service-oriented companies, which employ the majority of the United States’ working population.

Respondents of the survey conducted by the Institute for Supply Management (ISM) did express concern about trade-related issues. But the overall sentiment about the economy remained upbeat. This is why it is a good time to invest in stocks from the services sector.

Index Expands at Faster Clip in May

The ISM services index increased from 56.8% in April to 58.6% in May. At this point, the index is nearing a 13-year high. More significantly, while any figure above 50% indicates expansion, a reading above 55% is outstanding.

The Business Activity Index increased from 59.1% to 61.3%, marking the 106th straight month of gains. Additionally, the New Orders Index increased from 60% to 60.5%. The Employment Index increased from 53.6% to 54.1%.

The report also revealed that 14 non-manufacturing industries have experienced expansion in a month. The survey’s results were nearly identical to the one released by IHS Markit. In fact, the IHS Markit U.S. Services Business Activity Index hit a three-year high in May.

Upbeat Sentiment Outweighs Trade Concerns

According to the ISM’s Anthony Nieves, respondents remained concerned about trade tensions. There are fears that a breakdown in trade agreements like the NAFTA and tariffs on aluminum and steel could raise costs on the supply side. This in turn could impede growth for the economy at large.

However, most respondents continue to remain positive about business conditions. The outlook for the economy at large remained encouraging. Recently released economic reports seem to bear out this fact. For instance, May’s jobs report reflects the continuing strength in the labor market with unemployment falling to an 18-year low. 

Our Choices

A substantial expansion in the services sector is indicative of its continuing attractiveness as an investment option. Additionally, encouraging economic data, like the recent jobs report, bears out the optimism expressed by respondents in the ISM survey.

This is why it makes good sense to add stocks from this sector to your portfolio. However, it is crucial to pick winning stocks in order to reap maximum gains. 

This is where our VGM Score comes in. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select winners. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM Score.

We have narrowed down our search to the following stocks based on a good Zacks Rank and VGM Score.

Avis Budget Group, Inc. (CAR - Free Report) provides vehicle rental services through a network of approximately 10,000 car and truck rental locations in the United States, Canada, Australia, Latin America, the Caribbean and parts of Asia.

Avis has a Zacks Rank #1 (Strong Buy) and a VGM Score of A. The company has expected earnings growth of 26.2% for the current year. The Zacks Consensus Estimate for the current year has improved by 10.1% over the last 60 days.

Expeditors International of Washington Inc. (EXPD - Free Report) is a leading third-party logistics (3PL) provider.

Expeditors International has a VGM Score of B. The company has expected earnings growth of 26% for the current year. The Zacks Consensus Estimate for the current year has improved by 8.4% over the last 30 days. The stock has a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

CACI International Inc. (CACI - Free Report) delivers IT applications and infrastructure to improve communications and secure the integrity of information systems and networks, enhance data collection and analysis, and increase efficiency and mission effectiveness.

CACI International has a Zacks Rank #2 (Buy) and a VGM Score of A. The company has expected earnings growth of 76.8% for the current year. The Zacks Consensus Estimate for the current year has improved by 14.1% over the last 60 days.

Amdocs Limited (DOX - Free Report) is one of the leading providers of customer relationship management (CRM) and billing software to communications service providers.

Amdocs has a Zacks Rank #2 and a VGM Score of B. The company has expected earnings growth of 7% for the current year. The Zacks Consensus Estimate for the current year has improved by 0.9% over the last 30 days.

Broadridge Financial Solutions Inc. (BR - Free Report) provides technology-based outsourcing solutions to the financial services industry.

Broadridge Financial has a Zacks Rank #2 and a VGM Score of B. The company has expected earnings growth of 34.4% for the current year. The Zacks Consensus Estimate for the current year has improved by 4.2% over the last 30 days.

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