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Non-Manufacturing Clocks 103rd Month of Growth: 4 Picks

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Economic activity in the non-manufacturing sector expanded in August as the NMI measured by The Institute of Supply Management (ISM) touched 58.5%. This is the 103rd straight month of expansion with 16 non-manufacturing industries reporting growth. August NMI was much higher than the consensus estimate of 56.3% and the July figure of 55.7%. Any reading above 50 indicates that the said sector is expanding.

The ISM Business Activity Index registered growth of 60.7% in the month, up 4.2% from the July reading, growing for the 109th consecutive month. The index for New Orders jumped to 60.4% from 57% in July, marking the 91st straight month of increase. Employment Index surged to 56.7% in the month, increasing 0.6% sequentially and expanding for 54 months on the trot.

All Round Gains for the Service Sector

August NMI indicates fresh signs of healthy business conditions and improving economy. Generally, an NMI above 49%, over a period of time underscores overall economic expansion. Concerns about the uncertainty surrounding logistics, tariffs and employment resources remain suppressed for the time being.

The business services sector, which is tightly linked to non-manufacturing activities and the broader economy, is currently in great shape. In fact, the Zacks Business Services Sector has gained 21.4%, over the past year, significantly outperforming the S&P 500’s rally of 16.1%.

Further, the group’s  Zacks Sector Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates continued outperformance in the near term. Its Zacks Sector Rank #6 places it at the top 38% of 16 Zacks sectors.

Given this backdrop, investing in business service stocks should be a prudent move.

4 Great Picks

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 for investors. You can see the complete list of today’s Zacks #1 Rank stocks here.

So, we have narrowed down our search to the following stocks as they fit the criteria.

Specialty rental services company General Finance Corporation (GFN - Free Report) sports a Zacks Rank #1 and has a VGM score of B. The company has an expected earnings growth rate of more than 100% for the current year. The Zacks Consensus Estimate for the current year improved 8.3% in the last 60 days.

Designer and manufacturer of office furniture products,Knoll, Inc. (KNL - Free Report) carries a Zacks Rank #2 and has VGM Score of A.It has expected earnings growth rate of 31.2% for the current year. The Zacks Consensus Estimate for the current year improved 3.4% in the last 60 days.

Human resources solutions provider TriNet Group, Inc. (TNET - Free Report) carries a Zacks Rank #2 and has a VGM Score of B. The company’s expected earnings growth rate for the current year is 39.2%. The Zacks Consensus Estimate for the current year improved 2.2% in the last 60 days.

Payment processing, merchant, and related payment services provider Total System Services, Inc. (TSS - Free Report) carries a Zacks Rank #2 and has a VGM Score of B. The company has expected earnings growth rate of 30.3% for the current year. The Zacks Consensus Estimate for the current year moved up 1.4% in the last 60 days.

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