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5 Stocks to Buy on Continued Expansion in Services Activity

The services sector has witnessed steady growth since reopening. This has seen companies like TransUnion (TRU), YETI Holdings, Inc. (YETI) and Chipotle Mexican Grill, Inc. (CMG) putting up a good...

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This story originally appeared on Zacks

The Delta variant of the coronavirus has been a reason of worry, raising concerns of an economic slowdown for some time now. This also resulted in markets taking a hit in September. However, the services data for September paints a different picture.

- Zacks

Recently released data for the U.S.services industry PMI (purchasing managers’ index) by the Institute of Supply Management (ISM) showed that the economy is on solid ground. And the worries of economic slowdown owing to another surge in coronavirus cases may not have dented the spirit of investors.

Services Activity Continues to Expand

According to data released by the Institute for Supply Management (ISM) on Oct 5 non-manufacturing (service) purchasing managers’ index (PMI) rose 0.2% to 61.9 from 61.7 in August. The consensus estimate was 60. Any reading above 50% means expansion in services activities.

September’s reading also indicates that the services sector expanded for the 16th straight month and140 months in a row, barring just two months. The Supplier Deliveries Index fell 0.8% to 68.8% from 69.6% in August.

The Business Activity Index rose to a reading of 62.3, increasing 60.1% sequentially. The New Orders Index gained 0.3% to reach 63.5%. The Backlog of Orders Index rose to 61.9%, advancing 0.6% from August’s reading of 61.3%.

Services Sector Grows With Economic Reopening

Interestingly, despite growing fears of the Delta variant of the coronavirus, 17 of the 18 service-related industries grew in terms of new orders and production. This also indicates that the growth is all around and people are a lot more confident now with millions having been vaccinated.

The sector had contracted 41.8% and 45.4% in April and May 2020, respectively, but has bounced back since then and is growing faster than ever. And this is despite the growing inflationary pressures.

As more people worked and learned from home during the pandemic, they became technology-dependent, boosting tech services. However, people primarily invested in goods at that time but things started changing with the vaccination drive as they shelled out more on services.

As the economy reopened, people started making travel plans, eating out at restaurants as well as visiting stores and recreation joints. This has been helping the services sector.

Business services are only likely to increase in the coming months as more people get vaccinated. This will only help people get back their confidence and business services to expand.

Our Choices 

The services sector is poised to grow on vaccination and more purchasing power from the government stimulus. Given this situation, it would be ideal to invest in these five stocks.

Avis Budget Group, Inc. CAR operates as a leading vehicle rental operator in North America, Europe and Australasia with an average rental fleet of nearly 650,000 vehicles.

The company’s expected earnings growth rate for the current year is more than 100%. The Zacks Consensus Estimate for current-year earnings improved 14.4% over the past 60 days. Avis Budget sports a Zacks Rank #1 (Strong Buy).You can see the complete list of today’s Zacks #1 Rank stocks here.

YETI Holdings, Inc. YETI designs, markets and distributes products for the outdoor and recreation market under the YETI brand primarily in the United States. The company's products are designed for outdoor activities, including hunting, fishing, camping, barbecue, and farm and ranch activities, among others. 

The company’s expected earnings growth rate for the current year is 32.6%. The Zacks Consensus Estimate for current-year earnings improved 0.8% over the past 60 days. The company has a Zacks Rank #2.

Concentrix Corporation CNXC provides technology-enabled business services. The company serves technology & consumer electronics; retail, travel & ecommerce; banking, financial services & insurance; healthcare; communications & media; automotive; and the energy & public sector. 

The company’s expected earnings growth rate for the current year is 60.5%. The Zacks Consensus Estimate for current-year earnings improved 5.8% over the past 60 days. The company has a Zacks Rank #2.

Chipotle Mexican Grill, Inc. CMG offers a focused menu of burritos, tacos, burrito bowls and salads. Chipotle restaurants feature free-range, hormone-free pork, natural chicken and other meat products cooked through traditional methods and served in a unique atmosphere. 

The company’s expected earnings growth rate for the current year is more than 100%. The Zacks Consensus Estimate for current-year earnings has improved 0.1% over the past 60 days. Chipotle Mexican Grill carries a Zacks Rank #2.

Dennys Corporation DENN is one of the largest restaurant companies, operating moderately priced restaurants: Denny's, Hardee's, Quincy's, El Pollo Loco, Coco's and Carrows. 

The company’s expected earnings growth rate for the current year is more than 100%. The Zacks Consensus Estimate for current-year earnings has improved 2% over the past 60 days. Chipotle Mexican Grill carries a Zacks Rank #2.



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Avis Budget Group, Inc. (CAR): Free Stock Analysis Report

 

Chipotle Mexican Grill, Inc. (CMG): Free Stock Analysis Report

 

Dennys Corporation (DENN): Free Stock Analysis Report

 

Concentrix Corporation (CNXC): Free Stock Analysis Report

 

YETI Holdings, Inc. (YETI): Free Stock Analysis Report

 

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