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US Service Sector Rebounds in October: 4 Top Picks

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Economic activity in the non-manufacturing sector rose firmly in October, bouncing back from a three-year low in the prior month. Less worries about a U.S.-China trade war in the near future largely influenced the service side of the U.S. economy. What’s more, new orders and employment levels also rose, inducing optimism among investors.

Investors thus should invest in solid service-oriented businesses that have the potential to grow in the near future.

Service Sector Bounces Back

The Institute for Supply Management said on Nov 5 that its non-manufacturing index rose to 54.7% in October from a 52.6% reading the month before. September’s reading was the weakest in three years. The non-manufacturing sector, therefore, witnessed considerable expansion for the 117th consecutive month and pointed at a healthier economy.

Although companies in the non-manufacturing sector weren’t affected as much by the U.S.-China trade war as the manufacturing sector, the former did experience laidback growth as a result of the spillover effect.

Overall concerns among companies over global growth, tariffs and labor resources affected the sector and continues to do so. However, significant progress is being made on the U.S.-China trade deal, which is boosting optimism over a trade agreement.

In fact, as part of the first phase of the agreement, China is pushing President Donald Trump to remove U.S. import tariffs on about $125 billion worth of Chinese goods. Chinese officials are also trying to get rid of a new set of tariffs scheduled to be imposed on its exports to the United States from Dec 15.

Investors are widely anticipating the phase one trade agreement by the end of 2019.

New Orders, Business Activity, Employment Rise

The index of business activity came in at 57% in October, more than the September’s reading of 55.2%. October’s rise marks growth in business activity for the 123rd consecutive month. Per the ISM report, 13 non-manufacturing industries registered growth in October. ISM’s index of non-manufacturing new orders also jumped 1.9 percentage points, registering a reading of 55.6% in October from September’s 53.7%.

The non-manufacturing sector added more new jobs last month as well. The non-manufacturing employment index also came in higher for October, up 3.3 percentage points from the September reading of 50.4%.

Professional and business services added 22,000 new jobs and health care added 15,000 positions in October. Social assistance added 20,000 new positions while financial activities gained 16,000 new roles, per the Labor Department.

Top 4 Stocks Set to Gain

We have, therefore, selected four stocks from the American service sector. Each of these stocks carries a Zacks Rank #1 (Strong Buy) or 2 (Buy).

FTI Consulting, Inc. (FCN - Free Report) is a provider of business advisory services to manage change, mitigate risk and resolve disputes. The company carries a Zacks Rank #1.

The Zacks Consensus Estimate for FTI Consulting’s current-year earnings has risen 9% over the past 60 days.The company’s stock has outperformed the Zacks Consulting Services industry on a year-to-date basis (+61.6% vs +28.2%). You can see the complete list of today’s Zacks #1 Rank stocks here.

Mastercard Incorporated (MA - Free Report) is a technology company that offers transaction processing and other payment-related products and services globally. The company carries a Zacks Rank #2.

The Zacks Consensus Estimate for Mastercard’s current-year earnings has risen 1.1% over the past 60 days.The company’s stock has outperformed the Zacks Financial Transaction Servicesindustry on a year-to-date basis (+42.6% vs +38.5%).

S&P Global Inc. (SPGI - Free Report) is a provider of ratings, benchmarks, analytics and data to the global capital and commodity markets. The company carries a Zacks Rank #2.

The Zacks Consensus Estimate for S&P Global’s current-year earnings has risen 1.8% over the past 60 days.The company’s stock has outperformed the Zacks Business – Information Servicesindustry on a year-to-date basis (+47.8% vs +37.8%).

CBIZ, Inc. (CBZ - Free Report) is a provider of professional business services, products and solutions. CBIZ’s services are aimed at helping its clients manage their finances and employees. The company carries a Zacks Rank #2.

The Zacks Consensus Estimate for CBIZ’s current-year earnings has risen 0.8% over the past 60 days.The company’s stock has outperformed the Zacks Consulting Services industry on a year-to-date basis (+34.8% vs +28.2%).

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