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Job Additions Hit 10-Month High: 5 Business Services Picks

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In December, job additions surged, leading to the best hiring for the U.S. economy since February. Further, job gains for October and November were revised upward, implying that the labor market was in good health. This bullish jobs report provides investors with fresh optimism about the economy since it comes on the back of dismal data on manufacturing and mortgage rates.  

Meanwhile, wage gains equaled a post-recession high, signaling that employees’ bargaining power had increased significantly. Job gains were led by the healthcare, restaurants, construction, manufacturing and retail sectors.  

However, professional and business services have contributed the largest number of jobs over the past year. This is why it makes sense to add stocks from this domain to your portfolio.

Participation Rate Increase Nudges Up Unemployment

Though job additions for December widely exceeded expectations, the unemployment rate increased from a 49-year low of 3.7% to 3.9%. The increase was a result of 419,000 additions to the workforce. Further, the labor force participation rate increased from 62.9% to 63.1%.

Also, the employment-population ratio remained unchanged at 60.6% for the third straight month. This is the highest level recorded since December 2008. The U6 unemployment rate, which includes people forced into part-time work and those only sporadically looking for jobs, also remained flat at 7.6%.

Meanwhile, average hourly earnings increased 11 cents to $27.48. Wages improved 0.4% over November and registered a yearly increase of 3.2%. This increase, along with October’s gains, is the highest yearly improvement recorded since April 2009. The average workweek increased by 0.1 hour to 34.5 hours.

Professional and Business Services Lead Job Gains in 2018

The economy added 312,000 jobs in December, significantly higher than the consensus estimate of 183,000.In 2018, nonfarm payrolls increased by 2.6 million, higher than 2017’s gain of 2.2 million. This is the highest gain recorded since 2015 and comes despite signs that the economy is near full employment.

Further, October and November’s job gains were revised significantly higher, heightening the bullish mood. While October’s gain was revised from 237,000 to 274,000, November’s additions increased from 155,000 to 176,000. This resulted in a net gain of 58,000, taking the three-month average up to 254,000.

At the forefront of job gains were health care, food services and drinking places, construction, manufacturing and retail trade, which added 50,000, 41,000, 38,000, 32000 and 24,000 jobs, respectively.

Professional and business services added 43,000 jobs. Notably, the industry has added 583,000 jobs over the past year, the highest among all those covered by the report from the Bureau of Labor Statistics. 

Our Choices

The surge in job additions for December indicates that the economy remains robust even at such a late point in the expansion. The unemployment rate may have increased, but only because of an uptick in the labor force participation rate. Additionally, wage gains are starting to pick up pace.  

Overall, professional and business services have provided the highest number of job additions in 2018. Adding stocks from this sector looks like a smart choice at this point. 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, each of which has a Zacks Rank #1 (Strong Buy) and a good VGM Score. You can see the complete list of today’s Zacks #1 Rank stocks here.

Cynergistek, Inc. (CTEK - Free Report) provides cyber security and information management consulting to the U.S. health care industry.

Cynergistek has a VGM Score of A. The company’s projected growth rate for the current year is 21.9%. The Zacks Consensus Estimate for the current year has improved by 10.4% over the last 60 days. 

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

Information Services Group has a VGM Score of A. The Zacks Consensus Estimate for the current year has improved by 13.2% over the last 60 days. 

Resources Connection, Inc. (RECN - Free Report) is a provider of business consulting services.

Resources Connection has a VGM Score of A. The company’s expected earnings growth for the current year is 2%.

MAXIMUS, Inc. (MMS - Free Report) is a provider of business process services to government human services and health programs across the world.

MAXIMUS has a VGM Score of B. The company’s projected growth rate for the current year is 7.7%. The Zacks Consensus Estimate for the current year has improved by 7.3% over the last 60 days. 

Xperi Corporation (XPER - Free Report) is a product and technology licensing company, which manufactures semiconductors and related products.

Xperi has a VGM Score of B. The Zacks Consensus Estimate for the current year has improved by 47.2% over the last 30 days. 

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