4 Stocks to Buy on Steady Growth in Services Sector Activity

Inflationary pressures have been taking a toll on the U.S. economy but the services sector still seems to be on solid ground. Although services activity slowed modestly in September, it is still growing at an impressive pace, hinting at the underlying strength in the economy despite surging interest rates. The Institute for Supply Management last week reported that services activity rose once again in August.

The recent easing of price pressures and supply restrictions, which indicate that the economy might not be in recession, was mainly behind the increase in services activity. Given this situation, business services stocks like ZipRecruiter, Inc. ZIP, Viad Corp VVI, Cross Country Healthcare, Inc. CCRN and GEE Group, Inc. JOB are likely to benefit in the near term.

Services Activity Grows

The Institute for Supply Management said on Oct 6 that its services sector Purchasing Managers’ Index (PMI) came up with a reading of 56.7 in September from 56.9 in August. Although the pace of growth slowed modestly, it’s a good sign that services activity has been growing at a solid pace amid the ongoing challenges like surging prices and interest rates.

A reading of anything above 50 suggests an increase in service activities. The services sector has now grown for 28 consecutive months, suggesting that people have started spending more on services and less on goods.

Additionally, growth in services activity suggests that the economy may not have yet succumbed to inflationary pressures despite a decline in manufacturing output and consumers cautious spending owing to rising commodity prices.

A slight decline in prices led to an increase in orders in the services sector in September. Orders have also been driven by the recent respite from supply problems. Growth in the services sector, despite rising prices, is another sign that the economy may not be as bad off as many predict.

The Prices Index decreased to 68.7% in September, dropping 2.8% from August. Prices have now declined for the fifth consecutive month. This decrease in prices has to a great extent been giving a boost to services activity.

U.S. inflation rose 0.4% in September, almost double the figure projected by economists, according to the Labor Department. Prices of food, shelter and medical care have been rising but higher demand is giving services activity a boost.

Moreover, consumers have once again started to spend more on services than on goods. People had been spending more on goods during the peak of the pandemic, which decreased business activity in the services sector. However, services activity started to boom once the economy started to reopen.

This may be yet another factor that has been slowing down the manufacturing and retail sectors. Business activity is predicted to increase even more in the coming months as a result of the significant demand.

Our Choices

Given this situation, it makes for an ideal opportunity to invest in these four stocks.

ZipRecruiter, Inc. provides employment services. ZIP offers recruiting, hiring, job boards, posting, web application, candidate screening, applicant tracking and job alerts services. ZipRecruiter operates principally in the United States and the United Kingdom.

ZipRecruiter’s expected earnings growth rate for the current year is more than 100%. The Zacks Consensus Estimate for current-year earnings has improved 73.9% over the past 60 days. ZIP has a Zacks Rank #2 (Buy).

Viad Corp has operations in the United States, Canada, the United Kingdom, continental Europe and the United Arab Emirates. VVI generates its revenue and shareholder value through two main business units: GES, a global full-service live events company serving the world's leading brands and event organizers and Pursuit, a collection of iconic and cultural destination travel experiences that showcase the best of Banff, Jasper, Glacier, Denali and Kenai Fjords National Parks.

Viad Corp’s expected earnings growth rate for the current year is more than 100%. The Zacks Consensus Estimate for current-year earnings has improved 50.8% over the past 90 days. VVI has a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Cross Country Healthcare, Inc. is a national leader in providing innovative healthcare workforce solutions and staffing services. CCRN’s diverse client base includes both clinical and nonclinical settings, servicing acute care hospitals, physician practice groups, outpatient and ambulatory-care centers, nursing facilities, both public schools and charter schools, rehabilitation and sports medicine clinics, government facilities, and homecare. Cross Country Healthcare is able to place clinicians on travel and per diem assignments, local short-term contracts and permanent positions.

Cross Country Healthcare’s expected earnings growth rate for the current year is 56.9%. The Zacks Consensus Estimate for current-year earnings has improved 1.7% over the past 60 days. CCRN has a Zacks Rank #2.

GEE Group, Inc. is a provider of professional staffing services and solutions. JOB formerly known as General Employment Enterprises, Inc., is based in Naperville, IL.

GEE Group’s expected earnings growth rate for the current year is more than 100%. The Zacks Consensus Estimate for current-year earnings has improved 12.5% over the past 60 days.  JOB has a Zacks Rank #1.

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