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5 Stocks to Buy as US Service Sector Revs Up in December

Zacks Equity Research

The non-manufacturing sector, which accounts for a major portion of the U.S. economy, rose more than expected for the 119th consecutive month in December. On Jan 7, the Institute of Supply Management (ISM) reported that the non-manufacturing index climbed to 55 in the last month of 2019, beating the consensus estimate of 54.5.

The ISM’s survey of service companies that encompass banks, retailers and restaurants rose to a four-month high. The index grew 1.1% over November’s 53.9, reflecting sustained growth in the world's largest economy.

As per ISM survey chair Anthony Nieves, positive economic data in December was a driver of the service sector’s growth. Ebbing of the U.S.-China trade war along with a dovish Federal Reserve that intended to hold rates constant and a 50-year low unemployment rate lent support to the service sector. These positive news on the economic front boosted consumer sentiments and in turn lifted the space. Retailers reported a strong 2019 holiday shopping season, while entertainment, management and health care industries reported strong growth in December.

Sub-indexes of the non-manufacturing index, especially the index for business production rebounded in December, gaining 5.6 points to a record 57.2%. In November 2019, the sub-index had dropped to a nine-year low.

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With the U.S.-China trade war ebbing, capacity constraints have eased a bit but respondents in the survey were highly concerned about difficulty in labor resources. Employment in the sector decreased slightly to 55.2 in December compared to November’s 55.5. As per the survey, service firms are facing problems in looking for enough skilled workers to fill empty positions. This is forcing companies to either raise wages to retrain old employees or invest more in automation.

5 Stocks to Buy Now

Given the higher-than-expected rise in ISM’s non-manufacturing index it is prudent to invest in solid business service providers. We have thus selected five such stocks that flaunt a Zacks Rank #1 (Strong Buy).You can see the complete list of today’s Zacks #1 Rank stocks here.

General Finance Corporation GFN is a specialty rental services company that deals in portable storage, modular space and liquid containment solutions. The company’s expected earnings growth rate for the current quarter is 50% against the Zacks Business - Services industry’s projected earnings decline of 43.7%. The Zacks Consensus Estimate for General Finance’s current-year earnings has been revised 3% upward over the past 60 days.

Elastic N.V. ESTC delivers technology that enables users to search through structured and unstructured data for a range of consumer and enterprise applications. The company’s expected earnings growth rate for current year is 10.8% compared with the Zacks Technology Services industry’s projected earnings growth of 5%. The Zacks Consensus Estimate for Elastic’s current-year earnings has been revised 4.7% upward over the past 60 days.

Copart, Inc. CPRT is a publicly traded company that provides online auctions and vehicle remarketing services. The company’s expected earnings growth rate for the current quarter is 25% compared with the Zacks Auction and Valuation Services industry’s projected earnings growth ofnearly 21%. The Zacks Consensus Estimate for current-year earnings has improved 5.7% over the past 60 days.

Everi Holdings Inc. EVRI provides technology solutions for the casino gaming industry in the United States, Europe, Canada, the Caribbean, Central America, and Asia. The company’s expected earnings growth rate for current quarter is more than 100% against the Zacks Business - Servicesindustry’s projected earnings decline of 43.7%. The Zacks Consensus Estimate for Everi Holdings’ current-year earnings has been revised 2.9% upward over the past 60 days.

Brookfield Business Partners L.P. BBU is a private equity firm that invests in business services, construction, energy and industrials sector. The company’s expected earnings growth rate for the current quarter is 89.4% against the Zacks Business - Servicesindustry’s projected earnings decline of 43.7%. The Zacks Consensus Estimate for Brookfield Business Partners’ current-year earnings has been revised 6% upward over the past 60 days.

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Everi Holdings Inc. (EVRI) : Free Stock Analysis Report
 
General Finance Corporation (GFN) : Free Stock Analysis Report
 
Copart, Inc. (CPRT) : Free Stock Analysis Report
 
Brookfield Business Partners L.P. (BBU) : Free Stock Analysis Report
 
Elastic N.V. (ESTC) : Free Stock Analysis Report
 
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Zacks Investment Research