Unemployment Nears 50-Year Low: 5 Top-Ranked Picks
Job additions came in below expectations in July, even though the broader employment picture remained robust. Meanwhile, the unemployment rate declined to near its lowest level in 50 years. Further, even though July's numbers missed targets, the figures for May and June were revised substantially upward. Additionally, the labor force participation rate remained unchanged.
At this point, the only worrying sign is the sluggish pace of wage growth, which refuses to pick up despite the difficulty in finding suitable employees. Professional and business services led job gains, followed by manufacturing, healthcare, restaurants and construction. With job gains likely to continue in the coming months, picking stocks from these sectors looks like a prudent option.
Unemployment Falls, Labor Force Participation Remains Flat
Though job additions for July came in under most expectations, the unemployment rate declined from 4% to 3.9%. That is merely 0.2% higher than the lowest level recorded in 50 years. The U6 unemployment rate that includes people forced into part-time work and people only sporadically looking for jobs, also dropped from 7.8% to 7.5%, the lowest level recorded since May 2001.
Meanwhile, the labor force participation rate remained unchanged at 62.9%. However, average hourly earnings increased by 7 cents to $27.05 an hour. Consequently, the yearly increase in wages remained flat at 2.7% in July. When the labor market is as tight as it is now, wages normally increase by 3% to 4%.
Professional Services, Manufacturing, Healthcare, Restaurants Lead Gains
The economy added 157,000 jobs in July, lower than the consensus estimate of 192,000. Lower job additions were likely an outcome of government job cuts in education during the summer recess and the shutdown of Toys R Us.
In the absence of these factors, job additions would likely have exceeded 200,000. Notably, monthly job additions have averaged 203,000 over the past one year. Job additions for May and June were revised upward by a combined 59,000. Average job additions for the last three months came in at 224,000.
At the forefront of job gains were manufacturing, healthcare, restaurants and construction, which added 37,000, 34,000, 26,000 and 19,000 jobs, respectively. However, leading the pack was professional and business services with 51,000 new jobs. The sector has added 518,000 jobs in the last 12 months.
Despite the decline in job additions during the month of July, the overall labor market picture remains solid. The unemployment rate is now hovering at record-low levels even as labor force participation remains unchanged. Further, job gains for the last two months have been revised significantly upward.
Professional and business services, manufacturing, healthcare, restaurants and construction have been the highest recruiters according to the July jobs report. Adding stocks from these sectors looks like a smart choice at this point. However, picking winning stocks may be difficult.
This is where our VGM Score comes in. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select winners. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM Score.
We have narrowed down our search to the following stocks, each of which has a Zacks Rank #1 (Strong Buy) and a good VGM Score. You can see the complete list of today's Zacks #1 Rank stocks here.
Clean Harbors, Inc.CLH is a leading provider of environmental, energy and industrial services in North America.
Clean Harbors has a VGM Score of A. The company's expected earnings growth for the current year is more than 100%. The Zacks Consensus Estimate for the current year has improved by 4.2% over the last 30 days.
NCI Building Systems Inc.NCS is one of the major integrated manufacturers of metal products for the North American non-residential construction industry.
NCI Building Systems has a VGM Score of A. The company has expected earnings growth of 77.5% for the current year. The Zacks Consensus Estimate for the current year has improved by 3.6% over the last 60 days.
Caterpillar Inc.CAT is the world's leading manufacturer of construction and mining equipment, diesel and natural gas engines and industrial gas turbines.
Caterpillar has a VGM Score of A. The company's projected growth rate for the current year is 67.7%. The Zacks Consensus Estimate for the current year has improved by 7.5% over the last 30 days.
HCA Healthcare, Inc.HCA is the largest non-governmental operator of acute care hospitals in the United States.
HCA Healthcare has a VGM Score of A. The company's expected earnings growth for the current year is 39.9%. The Zacks Consensus Estimate for the current year has improved by 4.4% over the last 30 days.
The Habit Restaurants, Inc.HABT , operator of The Habit Burger Grill, is a burger-centric fast casual restaurant company.
The Habit Restaurants has a VGM Score of B. The Zacks Consensus Estimate for the current year has improved by more than 100% over the last seven days.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.