On Jun 5, the Institute for Supply Management (ISM) announced fresh figures for its service index for the month of May. Notably, the reading exceeded expectations and returned to the growth trajectory after two consecutive months of decline. The ISM Services index clearly reflects that the U.S. economy has sustained its momentum going into the second quarter. Gains were broad-based and occurred in 16 out of total 17 industries.
Service-oriented businesses remained strong in May, improving for 112 consecutive months. At this stage, it will be prudent to invest in stocks from the services sector with a favorable Zacks Rank and strong growth potential. Strong May Readings The ISM reported that its service index came in at 56.9% for the month of May, surpassing the consensus estimate of 55% and previous month’s reading of 55.5%. May’s reading is the second highest so far in this year. Notably, any reading above 50% indicates expansion of the services sector and a reading of above 55% reflects outstanding performance by the services sector. A strong bunch of 16 industries expanded in May. The sole exception was Agriculture, Forestry, Fishing & Hunting. The Business Activity Index came in at 61.2%, and has now increased for 118 consecutive months. Additionally, the New Orders Index stood at 58.6% while the Employment Index came in at 58.1%. ISM chair Anthony Nieves said, “Respondents are mostly optimistic about overall business conditions, but concerns remain about tariffs and employment resources.” Healthy Fundamentals of the U.S. Economy Fundamentals of the U.S. economy remain strong. First-quarter 2019 GDP growth rate was 3.1% despite 35-day long partial government shutdown and extremely cool winter. The Bureau of Economic Analysis reported that personal consumption grew 1.2% in the first quarter. A high rate of consumer spending confirms that the economy is in a strong footing to likely result in solid second-quarter growth. For May 2019, the Conference Board's measure of consumer confidence index stands at 134.1 compared with 129.2 in April. May’s reading is near the 18-year high recorded in November 2018 and above the consensus estimate of 129.5. A robust job market, higher consumer spending, low inflation rate and a possible interest rate cut are likely to push up consumer confidence in the months to come. More importantly, the Expectations Index, which is a measure of the consumers’ short-term (for next six months) outlook for income, business and labor market conditions, surged to 106.6 from 102.7. The Expectation Indexes currently stands close to the highest level in a decade. VIDEO Our Top Picks Substantial expansion in the services sector is indicative of its continuing attractiveness as an investment option. This is why it makes good sense to add stocks from this sector to your portfolio. We have narrowed down our search to five such stocks each carrying a Zacks Rank #1 (Strong Buy). You can see . Each of these stocks has moved higher year to date and still has upside left. the complete list of today’s Zacks #1 Rank stocks here The chart below shows price performance of our five picks year to date.
Strategic Education Inc. ( STRA - Free Report) provides a range of post-secondary education and non-degree programs in the United States. It operates through three segments: Strayer University, Capella University and Non-Degree Programs. The company has expected earnings growth of 36.2% for the current year. The Zacks Consensus Estimate for the current year has improved by 7.1% over the last 60 days. The stock has surged 62.9% year to date. Rent-A-Center Inc. ( RCII - Free Report) leases household durable goods to customers on a rent-to-own basis. The company operates through four segments: Core U.S., Acceptance Now, Mexico, and Franchising. The company has expected earnings growth of 100% for the current year. The Zacks Consensus Estimate for the current year has improved by 12.8% over the last 60 days. The stock has surged 48.5% year to date. Clean Harbors Inc. ( CLH - Free Report) is a leading provider of environmental, energy and industrial services in North America. The company has expected earnings growth of 44.4% for current year. The Zacks Consensus Estimate for the current year has improved by 7.7% over the last 60 days. The stock has surged 35.4% year to date. SPS Commerce Inc. ( SPSC - Free Report) is a provider of on-demand supply chain management solutions servicing its customers worldwide. The company has expected earnings growth of 14% for current year. The Zacks Consensus Estimate for the current year has improved by 6.3% over the last 60 days. The stock has surged 28.5% year to date. Middlesex Water Co. ( MSEX - Free Report) owns and operates regulated water utility and wastewater systems. It operates in two segments, Regulated and Non-Regulated. The company has expected earnings growth of 10.7% for the current year. The Zacks Consensus Estimate for the current year has improved by 5.9% over the last 60 days. The stock has surged 11.7% year to date. Looking for Stocks with Skyrocketing Upside? Zacks has just released a Special Report on the booming investment opportunities of legal marijuana. Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look. See the pot trades we're targeting>>