The U.S. service sector is currently riding on a three-fold advantageous situation — continued strength in economic activities, increased vaccination drives and industry players’ evolution of the way of conducting businesses.
These changes have been fueling a strong revival from the pandemic blues, aiding almost all the service spaces, mainly accommodation & food services; educational services; professional, scientific & technical services; construction; information; retail & wholesale trade; finance &insurance; rental & leasing; transportation & warehousing; health care & social assistance.
Notably, the Zacks Business Services industry has rallied a massive 155.5% over the past year, significantly outperforming the 37.8% rally of the Zacks S&P 500 composite.
Encouraging Economic Numbers
The sector is a major beneficiary of the economy, which is gathering strength on the ongoing mass vaccination program. A steady recovery is evident from the latest second-quarter 2021 GDP number, which according to the “second” estimate released by the Bureau of Economic Analysis, grew at an annual rate of 6.6% compared with the increase of 6.5% in the “advance” estimate and 6.3% in the first quarter.
With both manufacturing and service activities in the pink, the demand for business services is rising steadily. Economic activity in the manufacturing sector rose 0.4% from July to August, with the Manufacturing PMI measured by the Institute for Supply Management (ISM) touching 59.9% and marking the 15th consecutive month of expansion after April 2020’s contraction. Although the economic activity in the service sector shrunk 2.4% from July to August with the Services PMI measured by the ISM touching 61.7%, the reading of above 50% marked the 15th consecutive month of expansion after a two-month period of contraction in 2020.
Service Providers Continue to Evolve
The pandemic will continue to change the way industry players have conducted businesses and delivered services so far. Currently, the key focus within the industry is on channelizing money and efforts toward more effective operational components, such as technology, digital transformation, data-driven decision-making and enhanced cybersecurity.
To position themselves suitably in the post-pandemic era and better utilize the opportunities that the economic recovery will bring in, service providers are increasing their efforts toward formulating and reassessing strategic initiatives, identifying the sources of demand and targeting the end markets.
Stocks That Deserve to be in Your Cart
Over the past year, the stock prices of six major service companies have had an impressive run on the bourse. HeadHunter Group HHR, Avis Budget Group CAR and SPS Commerce SPSC have appreciated 159.9%, 162.9% and 83.4%, respectively. BGSF, Inc. BGSF and Vectrus VEC have rallied a respective 39.1% and 25.4%.
Image Source: Zacks Investment Research
HeadHunter Group, Avis Budget, BGSF and Vectrus are Zacks Rank #1 (Strong Buy) companies, currently. SPS Commerce carries a Zacks Rank #2 (Buy), at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
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