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5 Stocks to Gain as Service Side of the Economy Bounces Back

Service sector activity in the United States rebounded in May and picked up faster than expected, banking on higher business activity. The increase in new orders signified the underlying strength in the non-manufacturing side of the economy despite sustained contraction in employment.

Thus, at the moment, investing in service-oriented companies like CareCloud, Inc. CCLD, DaVita Inc. DVA, RadNet, Inc. RDNT, SkyWest, Inc. SKYW and American Express Company AXP seems judicious.

U.S. Service Sector Humming

The Institute of Supply Management noted that the non-manufacturing index (NMI) increased to 53.8% in May from April’s reading of 49.4%. Analysts had estimated the NMI to inch higher to 50.7%.

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The NMI, incidentally, had fallen into the contraction territory for the first time in April since December 2022. Any reading below the 50% mark indicates a contraction.

Nonetheless, the service sector activity barometer had expanded for the 46th time in the last 48 months, while 13 of the 15 non-manufacturing industries reported growth last month and squashed worries about any looming recession.

Rise in Business Activity & New Orders

The business activity index increased to 61.2% in May from 50.9% in April and expanded for the 48th successive month. The index has notched its highest reading since November 2022. Since the pandemic lows, business activity in the service sector has improved substantially.

At the same time, the new orders index came in at 54.1% in May, higher than April’s reading of 52.2%. Following a contraction in December 2022, the index has expanded for the 17th straight month, a tell-tale sign that new orders for equipment and components have improved considerably.

Service Sector Cautious About Hiring

Employment in the service side of the economy contracted for the fifth time in six months in May, yet seven non-manufacturing industries reported an increase in employment. As a result, the employment index came in at 47.1% in May from April’s reading of 45.9%.

The labor market, undoubtedly, is competitive. But it remains healthy amid relentless price pressures.

Top 5 Gainers

Thanks to the promising developments in the non-manufacturing sector, shrewd investors should place their bets on solid service-oriented companies. We have, thus, selected five such stocks that might make meaningful additions to your portfolio. These stocks flaunt a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

CareCloud provides services such as revenue cycle management, practice management, electronic health records, business intelligence, telehealth, and patient experience management. CCLD currently has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has increased 158.6% over the past 60 days. The company’s expected earnings growth for the current year is 112.4%.

DaVita is a leading provider of dialysis services in the United States. The company currently has a Zacks Rank #2. The Zacks Consensus Estimate for DVA’s current-year earnings has increased 4.2% over the past 60 days. The company’s expected earnings growth for the current year is 13.6%.

RadNet provides high-quality, cost-effective diagnostic imaging services. RDNT currently has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has increased 68.6% over the past 60 days. The company’s expected earnings growth for the current year is 18%.

SkyWest operates as a regional airline in the United States. The company currently has a Zacks Rank #1. The Zacks Consensus Estimate for SKYW’s current-year earnings has increased 6.9% over the past 60 days. The company’s expected earnings growth for the current year is 787%.

American Express is a diversified financial services company. AXP currently has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has increased 0.9% over the past 60 days. The company’s expected earnings growth for the current year is 16.1%.

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American Express Company (AXP) : Free Stock Analysis Report

DaVita Inc. (DVA) : Free Stock Analysis Report

RadNet, Inc. (RDNT) : Free Stock Analysis Report

SkyWest, Inc. (SKYW) : Free Stock Analysis Report

CareCloud, Inc. (CCLD) : Free Stock Analysis Report

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Zacks Investment Research