In response to aircraft subsidies, the United States is now considering the implementation of additional tariffs on products from the European Union. This will for certain embitter trade relations with the bloc at a time when the United States has agreed on a truce with China.
With the stock market is expected to gyrate on new tariff moves, it will be prudent to invest in service-oriented companies that remain unperturbed by trade-related issues.
Trump Administration Proposes Tariffs on EU Goods
President Trump recently said that trade talks with China have resumed, which eventually helped the stock market gain traction. Trump added that “farmers are going to end up being the great beneficiary” as hostility between the world’s largest economies have ebbed and that their economic relations are improving.
But, trade woes between the United States and its trading partners are far from over. The Trump administration has now proposed an additional $4 billion in tariffs on EU goods to bend a 15-year disagreement over aircraft subsidiary.
The United States is contemplating levying tariffs on European products, including olives, Italian cheese, Scotch whiskey, and some 86 other tariff sub-categories. In fact, such tariffs in particular will almost double or even triple the cost of olive oil. The United States had proposed tariffs on $21 billion of European products in April.
Trade wars are certainly not encouraged as they impede economic growth and squeeze corporate profits. Lest we forget, a trade war with China had cost $7 trillion, while the U.S. tech sector was losing nearly $1.3 billion a month.
Service Firms Are Big Gainers
Service firms are safe bets for now. Such firms are unruffled by trade retaliations as they have less foreign sales exposure compared to goods companies. Service stocks also incur lower foreign input costs that might be subject to tariffs. Such input costs are mostly related to direct materials, labor and factory overheads.
The service wing of the U.S. economy by the way picked up in May, recovering from a 20-month low. According to the Institute for Supply Management (ISM), the non-manufacturing index (NMI) came in at 56.9 in May, topping analysts’ estimates of a slight dip to 55.4. It was also higher than April’s two-and-a-half-year low of 55.5.
The non-manufacturing sector, thus, saw uninterrupted expansion for the 112th consecutive month, indicating that the broader economy is on track for steady growth this year. After all, the non-manufacturing sector accounts for nearly 90% of the economy, while any reading above 50 indicates that the said sector is expanding.
Notably, 16 of the 18 non-manufacturing industries reported expansion, led by education services, transportation and warehousing, utilities, real estate, finance & insurance, healthcare, construction, mining, retail trade, and information.
5 Solid Choices
We have, thus, selected five solid service stocks that should make meaningful additions to your portfolio. These stocks flaunt a Zacks Rank #1 (Strong Buy) or 2 (Buy). The search was also narrowed down with a VGM Score of A or B. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three metrics. Such a score allows you to eliminate the negative aspects of stocks and select winners.
Kelly Services, Inc. (KELYA - Free Report) provides workforce solutions to various industries. The stock currently has a Zacks Rank #1 and a VGM Score of B. The Zacks Consensus Estimate for its current-year earnings has moved 4.3% up in the past 60 days. The company’s expected earnings growth for the current year is 7.9%, higher than the Staffing Firms industry’s projected rally of 3.7%.
NV5 Global, Inc. (NVEE - Free Report) provides professional and technical engineering and consulting services to public and private sector clients. The stock currently has a Zacks Rank #2 and a VGM Score of A. The Zacks Consensus Estimate for its current-year earnings has risen 7.6% in the past 60 days. The company’s expected earnings growth for the current year is 17.9%, higher than the Consulting Services industry’s estimated rise of 6.6%.
Limbach Holdings, Inc. (LMB - Free Report) provides commercial specialty contract services in the United States. The stock currently has a Zacks Rank #1 and a VGM Score of B. The Zacks Consensus Estimate for its current-year earnings has climbed 35.4% in the past 60 days. The company’s expected earnings growth for the current quarter is 111.1%, higher than the Building Products - Maintenance Service industry’s expected rally of 10.2%. You can see the complete list of today’s Zacks #1 Rank stocks here.
MAXIMUS, Inc. (MMS - Free Report) provides business process services (BPS) to government health and human services programs. The stock currently has a Zacks Rank #2 and a VGM Score of A. The Zacks Consensus Estimate for its current-year earnings has moved 1.1% up in the past 60 days. The company’s expected earnings growth for the next quarter is 31.5%, higher than the Government Services industry’s projected rally of 16.2%.
First American Financial Corporation (FAF - Free Report) , through its subsidiaries, provides financial services. The stock currently has a Zacks Rank #2 and a VGM Score of B. The Zacks Consensus Estimate for its current-year earnings has moved 0.9% up in the past 60 days. The company’s expected earnings growth for the next quarter is 13.13%, slightly higher than the Insurance - Property and Casualty industry’s projected rally of 13.10%.
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