U.S. Service Sector Bounces Back: Who Wins, Who Loses?

On Nov 5, the Institute of Supply Management (ISM) reported that the U.S. service sector bounced back in October. ISM’s non-manufacturing index climbed to 54.7 in October from 52.6 in September, reflecting sustained growth in the world's largest economy.

Service oriented business grew at a faster pace last month, as trade tensions between the United States and China ebbed.

Sub-indexes like the business activity index increased to 57.0 in October from 55.2 in September, while the new orders index jumped to 55.6 in October from 53.7 in the prior month. The employment index that had declined at an alarming rate in September to 50.4 also spiked to 53.7 in October.

This growth in the service sector, where nearly two-third of the U.S. economic activity occurs, indicates that the economy is expanding at a healthy pace despite the slump in the manufacturing sector caused by the protracted trade war and global economic slowdown.

Gainers

Given the uptick in ISM’s non-manufacturing index, it makes sense to invest in solid service providers now. We have thus selected four such stocks that flaunt a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Copart, Inc. (NASDAQ:CPRT) is a publicly traded company that provides online auctions and vehicle remarketing services. The company’s expected earnings growth rate for the next quarter is 21.2%, which is above the industry’s projected rally of 19.7%. The Zacks Consensus Estimate for current-year earnings has improved 4.3% over the past 60 days.

Copart has outperformed the Auction and Valuation Services industry over the past one-year period (+61.9% vs +51.7%).

FTI Consulting, Inc. (NYSE:FCN) is a publicly traded company that provides business advisory services to manage change, mitigate risk, and resolve disputes. The company’s expected earnings growth rate for the current year is 47.8%, which is above the industry’s projected rally of 8.7%. The Zacks Consensus Estimate for current-year earnings has improved 9% over the past 60 days.

FTI Consulting has outperformed the Consulting Services industry over the past one-year period (+61.9% vs +51.7%).

SPS Commerce, Inc. (NASDAQ:SPSC) is a publicly traded company that provides cloud-based supply chain management solutions. The company’s expected earnings growth rate for the current quarter is 11.1%, which is above the industry’s decline of 71.7%. The Zacks Consensus Estimate for current-year earnings has improved 5.2% over the past 60 days.

SPS Commerce has outperformed the Business - Services industry over the past one-year period (+11.2% vs -8.2%).

LHC Group, Inc. (NASDAQ:LHCG) is a publicly traded health care company that specializes in post-acute continuum of care primarily for Medicare beneficiaries in the United States. The company’s expected earnings growth rate for the current year is 22.3%, which is above the industry’s projected rally of 11.9%. The Zacks Consensus Estimate for current-year earnings has improved 0.9% over the past 90 days.

LHC Group has outperformed the Medical Services industry over the past one-year period (+24.4% vs -30%).

Loser

The rise in service sector is definitely good news for investors but there are sectors that decline when the dominating sector of the U.S. economic activity grows. In short, as the service sector expands, investors’ sentiments get a boost and they start investing in stocks. This has a reverse effect on safe haven assets like gold.With the markets flourishing, investors draw out money from low-return safe assets like gold and invest in stocks. Post the release of ISM’s service activity report, gold prices traded 1.3% down at $1,491.00.

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