The U.S. services industry has continued to show resilience despite inflationary pressures. Demand for services has been growing over the past few months, indicating that the economy is still going strong. Also, as inflationary pressures ease further, the industry should benefit more.
Moreover, with renewed optimism over the Fed likely keeping its interest rates unchanged in its upcoming FOMC, the industry is expected to get a further boost. Given this situation, stocks like Verisk Analytics, Inc. VRSK, Huron Consulting Group Inc. HURN, APi Group Corporation APG and MSCI Inc. MSCI are expected to benefit in the near term.
Services Activity Grows in August
The Institute for Supply Management reported on Sep 6 that its non-manufacturing Purchasing Managers’ Index (PMI) increased month over month to 54.5 in August, up from 52.7 in July and surpassed the consensus estimate of a decline of 53.9. Also, last month’s reading was the highest since February.
The services industry has now expanded for the eighth consecutive month. The services industry accounts for over two-thirds of the economy. A reading of more than 50 indicates growth in the services sector.
The Business Activity Index jumped to 57.3% in August, up 0.2% from July’s reading of 57.1%. The New Orders Index rose to 57.5%, up 2.5% from July’s reading of 55%. The index has now expanded for the eighth straight month after declining in December for the first time since May 2020.
Understandably, the services industry is making a rebound as inflationary pressures continue to ease. Although the manufacturing sector continues to suffer, high demand for services has seen the industry hold its ground amid rising costs.
The Fed has so far increased interest rates by 525 basis points over the past year to take its benchmark policy rate to the range of 5.25-5.5% in its fight to tame multi-decade high inflation.
The Fed’s aggressive rate hike stance has seen inflation decline sharply over the last 13 months. The personal consumption expenditure (PCE) inflation rose 3.3% in July on a year-over-year basis, after hitting a high of 7% last summer.
A resilient labor market was the Fed’s biggest concern as it posed a major challenge in fighting inflation. However, the Labor Department said that job growth averaged around only 150,000 over the past three months, down from 280,000 in the previous three months through May. Also, the unemployment rate rose to 3.8% in August, up from 3.5% in July and the highest level since February.
Although the Fed has hinted at more interest rate hikes, optimism has been high lately that the central bank might leave interest rates unaltered in its September FOMC meeting as fresh data hinted at a cooling labor market.
Our Choices
The present situation makes for an ideal opportunity to invest in the following four stocks.
Verisk Analytics, Inc. is one of the leading data analytics providers serving customers in insurance, energy and specialized markets, and financial services. Using advanced technologies to collect and analyze data, VRSK draws on unique data assets and deep domain expertise to provide innovations that are integrated into customer workflows.
Verisk Analytics’ expected earnings growth rate for the current year is 14%. The Zacks Consensus Estimate for current-year earnings has improved 3.6% over the past 60 days. VRSK presently carries a Zacks Rank #2 (Buy).
Huron Consulting Group Inc. is the parent company of Huron Consulting Services LLC, an independent provider of financial and operational consulting services. HURN’s experienced and credentialed professionals use their expertise in accounting, finance, economics and operations to serve a wide variety of both financially sound and distressed organizations. HURN operates through three segments: Healthcare, Education and Commercial.
Huron Consulting Group’s expected earnings growth rate for the current year is 31.8%. The Zacks Consensus Estimate for current-year earnings has improved 9.4% over the past 60 days. HURN currently sports a Zacks Rank #1.
APi Group Corporation provides business services pertaining to safety, specialty and industrial. APG offers critical pipeline integrity and construction services for energy companies, utilities, public agencies, and contractors, as well as end-to-end fire protection solutions, including design, installation, inspection and service of fire protection systems.
APi Group Corporation’s expected earnings growth rate for the current year is 13.5%. The Zacks Consensus Estimate for current-year earnings has improved 0.7% over the past 60 days. APG currently carries a Zacks Rank #2.
MSCI Inc. provides investment decision support tools. MSCI’s services include portfolio construction and risk management products and services; environmental, social and governance research and ratings; and real estate research, reporting and benchmarking offerings.
MSCI Inc.’s expected earnings growth rate for the current year is 14.6%. The Zacks Consensus Estimate for current-year earnings has improved 1.8% over the past 60 days. MSCI currently carries a Zacks Rank #2.
Huron Consulting Group Inc. (HURN): Free Stock Analysis Report
MSCI Inc (MSCI): Free Stock Analysis Report
Verisk Analytics, Inc. (VRSK): Free Stock Analysis Report
APi Group Corporation (APG): Free Stock Analysis Report
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