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US Service Sector Accelerates in January: 5 Stocks to Buy

Zacks Equity Research

On Feb 5, the Institute for Supply Management (ISM) stated that non-manufacturing sector grew for the 120th consecutive month in January. ISM’s non-manufacturing index, estimated to be 55.1%, rose to 55.5% last month, above December’s reading of 54.9%.

Additionally, the index for new orders jumped to 56.2% in January, an increase of 0.9 percentage points from the December reading of 55.3%. Further, the non-manufacturing business activity index, a sub-index, rose to 60.9%, higher than December’s reading of 57%, reflecting growth for 126 months in a row. On the flip side, ISM’s employment index declined to 53.1% in January from December’s seasonally adjusted reading of 54.8%. The decline can be attributed to shortage of skilled labor.

But the ADP National Employment Report showed substantial job additions in the service sector in the previous month. In fact, growth was recorded across a broad strip reflecting solid job additions.

Top-Performing Sectors in January

Per ADP and Moody’s Analytics’ National Employment Report, the private sector added 291,000 payrolls in January, above the expectation of 156,000 additions. This marked the best monthly gain since May 2015 and a steep rise from December’s revised count of 199,000.

Growth was recorded across leisure and hospitality, education and health services, and professional and business services. The leisure and hospitality sector led with 96,000 jobs additions, followed by 70,000 new job additions in education and health services. Professional and business services added 49,000 new jobs in January.

Overall, the service-providing sector added a whopping 237,000 jobs compared with 54,000 jobs added by the goods-producing sector. The goods-producing sector was boosted by 47,000 job additions in the construction space, the highest since January 2019.

Mark Zandi, chief economist of Moody’s Analytics, said that weather played a significant role in January’s job additions. According to Zandi, both leisure and hospitality and construction are sensitive to weather, higher-than-normal temperatures and low precipitation.

5 Stocks to Buy

Given the positive developments, we have shortlisted five stocks from the service sector that carry a Zacks Rank #1 (Strong Buy) or #2 (Buy).

New Oriental Education & Technology Group Inc. EDU provides private educational services and operates through language training and test preparation courses, and other segments. The company’s expected earnings growth rate for the current year is 39.5% against the Zacks Schools industry’s projected earnings decline of 1.6%.

The Zacks Consensus Estimate for the company’s current-year earnings has been revised 4.7% upward over the past 60 days.New Oriental Education & Technology Group sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Brookfield Business Partners L.P. BBU specializes in acquisitions. The company invests in business services, construction, energy, and industrials sector. The company’s expected earnings growth rate for the current year is more than 100% against the Zacks Business - Services industry’s projected earnings decline of 6.7%. The Zacks Consensus Estimate for the company’s current-year earnings has been revised 6% upward over the past 60 days. It carries a Zacks Rank #1.

Everi Holdings Inc. EVRI provides technology solutions for the casino gaming industry, including licenses, back office systems and much more. This Zacks Rank #1company’s expected earnings growth rate for the current year is more than 100% against the Zacks Business - Services industry’s projected earnings decline of 6.7%. The Zacks Consensus Estimate for the company’s current-year earnings has been revised 2.9% upward over the past 60 days.

WW International, Inc. WW provides weight management services. The company offers a range of products and services comprising nutritional, activity, behavioral, and lifestyle tools and approaches. The company’s expected earnings growth rate for the next quarter is more than 100% compared with the Zacks Leisure and Recreation Services industry’s projected earnings growth of 38.1%. The Zacks Consensus Estimate for the company’s current-year earnings has been revised 0.6% upward over the past 60 days.WW International carries a Zacks Rank #2.

CareDx, Inc CDNA is a transplant diagnostics company. Together with its subsidiaries, it focuses on the discovery, development, and commercialization of diagnostic solutions for transplant patients. The company’s expected earnings growth rate for the current year is more than 100% compared with the Zacks Medical Services industry’s projected earnings growth of 12.6%. The Zacks Consensus Estimate for the Zacks Rank #2 company’s current-year earnings has been revised 14.3% upward over the past 60 days.

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Everi Holdings Inc. (EVRI) : Free Stock Analysis Report
 
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