The U.S. non-manufacturing or services sector is showing strong signs of recovery after struggling for months. Although inflationary pressures continue to weigh on the economy, the sector has been expanding over the past few months, with demand soaring in February.
Given the positive sentiment, it would be ideal to invest in four stocks from the services sector — Liquidity Services, Inc. LQDT, Remitly Global, Inc. RELY, Exponent, Inc. EXPO and Sezzle Inc. SEZL — that we have detailed below. Each of these stocks carries a Zacks Rank #1 (Strong Buy) or #2 (Buy) and assures good returns. You can see the complete list of today’s Zacks #1 Rank stocks here.
Services Activity Advances
The ISM Services PMI climbed to 56.1 in February from 53.8 in January, surpassing analysts’ expectations of a decline to 53.5. February’s reading was also the highest level since July 2022. Any reading above 50 over a prolonged period indicates an expansion in the services sector. The services sector accounts for more than two-thirds of the nation’s overall economic activity.
The jump in February came as businesses piled on inventories with the expectation that demand would surge further in the coming months. Inventories Index jumped to 56.4% sequentially in February, up 11.3% from January’s figure of 45.1%.
The Business Activity Index rose to 59.9% sequentially in February, a 2.5% gain from January’s reading of 57.4%. The New Orders Index jumped to 58.6% in February, up 5.5% from the prior month’s reading of 53.1%.
President Donald Trump’s tariffs have been weighing on the economy but businesses are confident that the worst is over and demand will continue to surge in the coming three quarters. The reason behind building up inventories is this optimism.
Concerns have been growing lately over a tightening labor market. However, the acceleration in the services activity also generated employment in the sector. The survey’s Employment Index rose to 51.8% in February, up 1.5% from January’s figures of 50.3%, to record its third straight month of gains. Understandably, optimism is high, suggesting that the economy is still holding strong.
4 Business Services Stocks With Upside
Liquidity Services
Liquidity Services, Inc. employs innovative e-commerce marketplace solutions to manage, value and sell inventory and equipment for business and government clients. The company operates a network of leading e-commerce marketplaces that enable buyers and sellers to transact in an efficient, automated environment, offering over 500 product categories.
Liquidity Services’ expected earnings growth for the current year is 10.9%. The Zacks Consensus Estimate for current-year earnings has improved 10.9% over the past 60 days. LQDT currently carries a Zacks Rank #1.
Remitly Global
Remitly Global, Inc. is a mobile-first provider of remittances and financial services for immigrants.
Remitly Global’s expected earnings growth for the current year is 59.4%. The Zacks Consensus Estimate for current-year earnings has improved 50% over the past 60 days. RELY currently sports a Zacks Rank #1.
Exponent
Exponent, Inc. is a multidisciplinary organization of scientists, physicians, engineers and business consultants performing in-depth scientific research and analysis in over 90 technical disciplines. EXPO is an engineering and scientific consulting firm providing solutions to complex problems.
Exponent’s expected earnings growth for the current year is 10.6%. The Zacks Consensus Estimate for current-year earnings has improved 1.8% over the past 60 days. EXPO currently has a Zacks Rank #2.
Sezzle
Sezzle Inc. is a purpose-driven digital payments company. SEZL payment platform increases the purchasing power of consumers by offering interest-free installment plans at online stores and select in-store locations.
Sezzle’s expected earnings growth for the current year is 30.6%. The Zacks Consensus Estimate for current-year earnings has improved 7.1% over the past 60 days. SEZL currently has a Zacks Rank #1.
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Liquidity Services, Inc. (LQDT): Free Stock Analysis Report Exponent, Inc. (EXPO): Free Stock Analysis Report Remitly Global, Inc. (RELY): Free Stock Analysis Report Sezzle Inc. (SEZL): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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