These US and UK services sector stocks are undervalued and high-growth

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By Mary-Lynn Cesar for Kapitall.

The services sectors in the United States and the United Kingdom expanded at a rate faster than previously forecasted in July, according to the latest readings from leading indices in both countries. 

In the US, the Institute for Supply Management's ( ISM ) nonmanufacturing index , which surveys purchasing and supply managers, rose to 58.7 from 56.0 in June, the gauge's highest level since its launch in January 2008. The Wall Street Journal 's average forecast expected last month's reading to reach 56.5.

Across the pond, the Markit/CIPS services purchasing mangers' index (PMI) increased from 57.7 in June to 59.1. Per The Guardian , economists had expected the index to only rise to 57.9 last month. In both indices, a reading over 50 indicates expansion. 

High growth in construction drove the ISM nonmanufacturing index to its six-year high. The growth in the sector supports the belief that the US economy is continuing to pick up speed after contracting in the first quarter and rebounding with 4% annualized growth in the second quarter.

Similarly, the UK's PMI reading, which was its best since November, suggests that Britain's economy will likely see 0.8% growth for yet another quarter. The combination of more investment and a greater number of new orders lifted the gauge last month. 

The encouraging readings from both indices inspired our following list. To begin, we compiled a group of US and UK services stocks. For our first screen, we looked for stocks that are undervalued with a price/earnings to growth ( PEG ) ratio below 1

Sticking with earnings, we decided to further narrow down our list by screening for stocks that are expected to see EPS growth of 25% or higher this year . And finally, we screened for stocks that had high quarter-over-quarter sales growth of 25% or greater

We were left with six US and UK services sector stocks on our list. Do you think these stocks will meet their EPS growth expectations after seeing the indices readings? Use this list as a starting point for your own analysis, and let us know what you think in the comments.

Click on the interactive chart to view data over time. 

1. Air Lease Corporation ( AL , Earnings , Analysts , Financials ): Engages in the purchase and leasing of aircraft. Market cap at $3.59B, most recent closing price at $35.30. PEG at 0.81. EPS is expected to grow by 36.70% this year. Sales growth quarter over quarter at 28.30%. The company is based in the US.

2. AMC Networks Inc. ( AMCX , Earnings , Analysts , Financials ): Operates various cable televisions' brands delivering content to audiences and a platform to distributors and advertisers in the United States and internationally. Market cap at $5.02B, most recent closing price at $70.07. PEG at 0.88. EPS is expected to grow by 111.60% this year. Sales growth quarter over quarter at 37.30%. The company is based in the US.

3. Conns Inc. ( CONN , Earnings , Analysts , Financials ): Operates as a specialty retailer of home appliances, consumer electronics, home office equipment, lawn and garden products, mattresses, and furniture in the United States. Market cap at $1.21B, most recent closing price at $33.67. PEG at 0.67. EPS is expected to grow by 62.80% this year. Sales growth quarter over quarter at 33.60%. The company is based in the US.

4. KNOT Offshore Partners LP ( KNOP , Earnings , Analysts , Financials ): KNOT Offshore Partners LP owns and operates shuttle tankers under long-term charters. The company provides crude oil loading, transportation, and storage services under time charters and bareboat charters. Market cap at $490.09M, most recent closing price at $28.60. PEG at 0.58. EPS is expected to grow by 57.40% this year. Sales growth quarter over quarter at 61.50%. The company is based in the UK.

5. Lakes Entertainment Inc. ( LACO , Earnings , Analysts , Financials ): Develops, finances, and manages Indian-owned casino properties. Market cap at $124.91M, most recent closing price at $4.72. PEG at 0.45. EPS is expected to grow by 483.30% this year. Sales growth quarter over quarter at 272.70%. The company is based in the US.

Kapitall Wire is a division of New Kapitall Holdings, LLC. Kapitall Generation, LLC is a wholly owned subsidiary of New Kapitall Holdings, LLC. Kapitall Wire offers free investing ideas, intended for educational information purposes only. It should not be construed as an offer to buy or sell securities, or any other product or service provided by New Kapitall Holdings, LLC, and its affiliate companies.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Stocks

Referenced Stocks: ISM , PEG

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