5 Stocks to Buy on Encouraging Employment Data

Employment data for the U.S. continued to be bullish for the second successive month in July. After posting strong numbers which exceeded estimates in June, the labor market scored back-to-back gains with an encouraging performance in July. Additionally, wage growth continued to remain strong, indicating that incomes and expenditure would both continue to rise.

Altogether, this report is a harbinger of better times for the U.S. economy. Sectors which added maximum jobs in June continued to post gains and it may be a good time to add stocks from these sectors to your portfolio. This is because they are possibly the engines powering the economy at the moment.

Payrolls Exceed Estimates

The economy added 255,000 jobs in July, following an upwardly revised reading of 292,000 job additions for the month of June. Most sectors reflected job additions indicating the economy's overall strength. Also, an additional 18,000 jobs were added in May and June than had been earlier estimated.

Most estimates had put job additions for July at 180,000 and this reading has exceeded that number by a wide margin. However, the reading for the unemployment rate came in marginally above the estimated 4.8% and remained flat at 4.9%.

This was primarily an outcome of more people entering the workforce. The labor participation rate increased by 0.1% to 62.8% while the employment to population ratio moved up from the level of 59.6% recorded in June to 59.7%.

Wage Growth Continues

Wages also increased for the second successive month after increasing in June. In July, wages rose by 0.3% while increasing 2.6% on a yearly basis. Additionally, the average workweek rose by 0.1 hours to 34.5 hours last month. This is the largest increase recorded since the month of January.

As a result, the take home pay for workers increased by 0.6%. This was a clear indication that employers were willing to accrue additional costs for higher wages in order to ensure employee retention. A healthy labor market along with steady wage growth is likely to provide the necessary impetus for higher incomes and, consequently, an increase in expenditure.

Professional and Business Services Add Most Jobs

During July, professional and business services, healthcare and financial activities were the sectors adding the highest number of jobs. With 70,000 job additions, professional and business services led the pack. The sector has added 550,000 jobs over the last 12-month period.

Meanwhile, jobs in the healthcare sector increased by 43,000 while financial activities contributed 18,000 jobs. Leisure and hospitality continued to make a significant contribution with 45,000 additions. Employment in mining continued to experience a downtrend.

Our Choices

Strong gains in payroll additions are yet another signal that the economy's health continues to improve. This is further borne out by steady wage increases which are likely to result in higher incomes and more expenditure.

Meanwhile, sustained job additions across certain sectors such as professional and business services indicate that growth prospects in these areas continue to improve. Picking stocks from these industries would make for a prudent choice.

However, picking winning stocks may prove to 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 based on a good Zacks Rank and VGM score.

PCM Inc. PCMI is a technology solutions provider to businesses, government and educational institutions and individual consumers.

PCM has a Zacks Rank #1 (Strong Buy) and a VGM Score of A. The company has expected earnings growth of more than 100% for the current year. Its earnings estimate for the current year has improved by 17.7% over the last 30 days.

CRA International Inc. CRAI provides legal, regulatory, business consulting and other expert services through its specialized consultants across the globe.

CRA International has a Zacks Rank #2 (Buy) and a VGM Score of A. The company has expected earnings growth of 11.8% for the current year. Its earnings estimate for the current year has improved by 6% over the last 30 days.

ICF International Inc. ICFI partners with government and commercial clients to deliver consulting services and technology solutions in the energy, environment, transportation, social programs, defense, and homeland security markets.

ICF International has a Zacks Rank #2 and a VGM Score of A. The company has expected earnings growth of 8.8% for the current year. Its earnings estimate for the current year has improved by 0.2% over the last 30 days.

Almost Family Inc. AFAM along with its subsidiaries is a provider of home health services.

Almost Family has a Zacks Rank #2 and a VGM Score of A. The company has expected earnings growth of 14.9% for the current year. Its earnings estimate for the current year has improved by 0.5% over the last 30 days.

Town Sports International Holdings Inc. CLUB is an owner and operator of fitness clubs across the Mid-Atlantic and Northeast regions of the U.S.

Town Sports International Holdings has a Zacks Rank #2 and a VGM Score of B. The company has expected earnings growth 56.4% for the current year. Its earnings estimate for the current year has improved by 11.1% over the last 30 days.

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