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5 Stocks to Buy as ISM Services Index Hits All-Time High

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In September, the ISM services index touched its highest level on record, exceeding expectations. This was a clear sign that the U.S. economy retained its strength at the close of the third quarter. Gains were broad-based and occurred across all the 17 industries covered by the survey.

This marks the services sector’s second straight month of expansion. Respondents of the survey did express concerns over trade tensions, logistics and capacity. But the overall sentiment surrounding the economy remained upbeat. This is why it is a good time to invest in stocks from the services sector.

Strongest Reading Since Inception

The ISM services index increased from 58.5% in August to 61.6% in September. This unexpected jump was in sharp contrast to a projected decline to 57.8%. Further, it represents the second consecutive month of robust growth since the decline suffered in July. More importantly, it is the highest reading registered since the inception of the index in 2008.

Notably, while any figure above 50% indicates expansion, a reading above 55% is outstanding. The Business Activity Index increased from 60.7% to 65.2%, marking the 110th straight month of gains. Additionally, the New Orders Index increased from 60.4% to 61.6%. The Employment Index increased from 56.7% to an all-time high of 62.4%.

The report also revealed that all 17 non-manufacturing industries covered by the survey had experienced expansion during the month. The findings of the survey were in sharp contrast to fresh data from IHS Markit, per which services expanded at a slower pace last month.

Upbeat Sentiment Outweighs Concerns

According to the ISM’s Anthony Nieves, respondents remained concerned last month “about capacity, logistics and the uncertainty with global trade.” As economic expansion continues, industries are being faced with severe capacity constraints. Meanwhile, as the labor market is tightening, hiring qualified workers has become difficult. Trade conflicts are also raising input costs.

However, respondents remained positive about business conditions in September. The outlook for the economy also remained encouraging. Recently released economic reports seem to bear out this fact. For instance, the ADP report for the month of September revealed that private sector hiring had experienced its highest increase since February.

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 latest report on private sector hiring, 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, picking winning stocks may be difficult.

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.

Conduent Incorporated (CNDT - Free Report) is a business process services company. It engages in providing business and government services to citizens, patients, customers and employees.

Conduent carries a Zacks Rank #1 (Strong Buy) and has a VGM Score of A. The company has expected earnings growth of 33.8% for the current year.

General Finance Corporation (GFN - Free Report) provides mobile storage, liquid containment and modular space solutions.

General Finance carries a Zacks Rank #1 and has a VGM Score of B. The company’s expected earnings growth for the current year is more than 100%. The Zacks Consensus Estimate for the current year has improved more than 100% over the last 30 days.

Clean Harbors, Inc. (CLH - Free Report) is a leading provider of environmental, energy and industrial services in North America.

Clean Harbors has a VGM Score of B. The company’s expected earnings growth for the current year is more than 100%. The Zacks Consensus Estimate for the current year has improved by 1.8% over the last 30 days. The stock sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Interpublic Group of Companies, Inc. (IPG - Free Report) , together with its subsidiaries, provides advertising and marketing services worldwide.  

The Interpublic Group has a Zacks Rank #2 (Buy) and VGM Score of A. The company has expected earnings growth of 22% for the current year.

Information Services Group, Inc. (III - Free Report) is a technology research and advisory company with global operations.

Information Services carries a Zacks Rank #2 and has a VGM Score of B. The company has expected earnings growth of 25.8% for the current year. The Zacks Consensus Estimate for the current year has improved by 8.6% over the last 60 days.

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