Investments

What Is Consumer Service Industry

By David Krug David Krug is the CEO & President of Bankovia. He's a lifelong expat who has lived in the Philippines, Mexico, Thailand, and Colombia. When he's not reading about cryptocurrencies, he's researching the latest personal finance software. 9 minute read

The service industry in the United States is both large and expanding. The service industry was mockingly labeled “the sole important element of the U.S. economy” in a 2016 Forbes article, which argued that it should be given primary consideration when evaluating the health of the American economy.

Several firms in this sector are publicly listed and generate enormous profits. Opportunities for financial gain are now available and cannot be ignored. Of course, not every stock in the consumer services sector is made equal. There’s a chance that some bets in this area may pay off handsomely, but there’s also a good chance that others will lose a considerable amount of money.

Investing in the service industry requires the same caution as any other type of stock investment. But how do you narrow it down to the finest stocks in a field that big?

5 Stocks to Buy in the Consumer Services Sector

There is a wide variety of options available in the service sector, including companies involved in shipping, communication, finance, healthcare, and many others that are traded on U.S. stock exchanges.

However, this might make it hard to zero down on exactly where your money should go. Five of the best services stocks are highlighted here.

  1. Amazon.com

One of the largest companies in the world, Amazon.com is valued at roughly $1.325 trillion. The e-commerce giant’s easy-to-navigate website, unmatched pricing, and lightning-fast shipping have made it a household name in the United States.

Amazon.com is the undisputed leader in the e-commerce industry, and its continued success has made it a hot investment pick. According to Statista, the firm will control 37.8% of the U.S. e-commerce sector in 2022. When compared to its nearest competitor, Walmart, who owns only 6.3% of the online buying business, that is a fairly big market share indeed.

Yes, offering both essentials and luxury, Amazon.com accounts for more than a third of the internet retail industry in the world’s largest economy. Wow, what a bold claim to make.
Even though the COVID-19 outbreak hindered the increase of sales and net earnings for many publicly listed firms, Amazon.com continued to flourish without skipping a beat. Before, during, and after the global health crisis, the company enjoyed strong net income and sales growth.

Reasoning is clear.

The spread of the coronavirus has exacerbated a trend that was already clear to specialists before the outbreak: a shift toward internet purchases and away from traditional retailers.
Many consumers were apprehensive to try online shopping before the economic slump. 

People were more inclined to make a purchase if they could handle the item in question beforehand. Older individuals, who tend to be the most loyal to the tried-and-true techniques of shopping, are also among those most at risk for developing major COVID-19 symptoms.

Many others feared the infection would spread, so they purchased online instead. Amazon.com benefited from this change since it is the market leader. The result was a significant rise in share price.

Regrettably, the organization lost a lot of ground in the recent IT meltdown. Although it’s down over 20% year to date, many investors see this as a buying opportunity.

However, Amazon.com’s e-commerce supremacy is not entirely based on seasonality. Early on, the company put billions into expanding its infrastructure and focusing heavily on providing customers with their products quickly. Amazon.com’s efforts have paid off, as the site now offers the best user experience in its field.

Amazon.com stock is already difficult to overlook due to the company’s proven track record of market leadership, world-class infrastructure, and fast revenue and profit growth. Even without factoring in the company’s fortitude in the face of the coronavirus and the resulting economic difficulties, the stock is one of the greatest options on the market at the moment.

  1. McDonald’s

Throughout the United States and the rest of the world, McDonald’s is the go-to for quick food. Given that it operates in the food service business, the COVID-19 epidemic first pushed the stock price to new lows relative to the company’s historical performance.

Today, however, the stock is trading at levels much above those seen before the outbreak.
It’s true that the fast food chain’s sales dropped significantly when the U.S. economy shut down, but that trend didn’t last long. Stocks began to rebound as same-store sales soared as the economy opened back up. The stock price has returned to its pre-COVID-19 levels, and growth has resumed its previous trend.

McDonald’s is a long-term bet with enormous potential, regardless of the strong COVID-19 rebound. Being the largest fast food chain in the world has its advantages. The firm’s unassailable brand equity and economic moat are direct results of its unparalleled tenure at the forefront of the fast food industry.

Customers are likely to seek familiarity when they re-enter the marketplace, and McDonald’s long standing prominence in the fast food industry bodes well for the company’s ability to retain customers and increase its market share.

Even more remarkably, McDonald’s is not just a services stock but also a dividend stock. The firm has for some years now paid quarterly dividends as a way to demonstrate appreciation to its shareholders. In spite of the coronavirus outbreak, the corporation has increased its dividend every year for the previous 43 years. The dividend yield of 2.15 percent isn’t the greatest available, but it’s still respectable.

Despite operating during some of the worst economic periods ever, McDonald’s has managed to succeed. McDonald’s has demonstrated durability seldom seen in the fast food market because of the company’s consistent wise actions by management and its status as a household name in the United States.

Overall, McDonald’s is one of the largest and most iconic enterprises in the world, and it has become the go-to option for consumers seeking hot meals delivered quickly. MCD stock is one to keep an eye on because of its rapid revenue growth in recent years, long track record of investor favorability, and dominant position in the hotel and services industries.

  1. Costco

In the United States, shopping at Costco, one of the largest warehouse store chains in the world, has become a staple of the retail landscape. The firm operates like a real-world paywall by offering deep discounts on mass purchases of groceries, clothing, electronics, home items, consumer essentials, and more. Consumers pay between $60 and $120 annually for a membership to Costco in order to take advantage of the warehouse club’s savings.

Costco has seen success with its membership model. With $3.9 billion in membership fees collected in 2021, the corporation is doing rather well.

Additionally, after you’ve paid for a subscription, you want to make the most of it. After all, no one enjoys parting with their hard-earned cash without feeling like they’ve gotten anything in return. As a result, the corporation reaps the benefits of repeat business from its faithful customer base, which generates well over $160 billion in sales annually.

Meanwhile, that sum of money is expanding fast. Over the prior year’s same period, net revenues increased by more than 16% in the most recent quarter.

While the reality of the spread of the coronavirus has been difficult for the retail industry as a whole, Costco has had an outstanding year. Due to the company’s status as a need, it was able to keep its outlets operating throughout the epidemic. That being the case, same-store sales kept rising as if nothing had changed.

It also feels like a good moment to start doing so right now. Early in the year, the stock price dropped along with the rest of the market. That might put off some potential buyers, but there’s a good case to be made that the stock is still trading at a significant discount relative to where it should be.

When you invest in Costco stock, you’re purchasing a piece of a corporation that has become a mainstay of the American retail industry. Despite the worldwide health crisis, the company’s huge audience of paying members has resulted in continued growth in both memberships and revenue and profitability. With that kind of resilience, Costco is a stock that investors can’t afford to overlook.

  1. Walmart

When only considering retail services, Walmart is the clear frontrunner. Walmart was already well established across the United States with thousands of stores before the rise of online shopping.

Competition from internet merchants like Amazon.com has been tough for traditional stores. Except for Walmart, of course. The firm enjoys two competitive advantages that together form the economic moat that is so beloved by legendary investor Warren Buffet.

  • Investments in Basic Facilities Made Early on. Walmart established an unparalleled retail infrastructure early on. As the company’s earnings grew, it opened a number of new retail locations and warehouses to ensure a steady supply of goods. This led to many people making Walmart their regular shopping destination. Changing people’s habits so that they no longer automatically think of Walmart when they need anything for their house, their pantry, their entertainment system, or their devices is an uphill battle.
  • Changeover in Cyberspace. Walmart took swift action when it realized the growing popularity of internet shopping may threaten its expansion plans. While Amazon.com remains the leader in online retail, eMarketer reports that Walmart.com has overtaken eBay to become the number two online retailer. Walmart’s sustained e-commerce efforts have helped the company increase its market share year after year.

As a necessary company, Walmart fared well throughout the COVID-19 epidemic. Grocery stores had to remain open throughout the coronavirus epidemic because of the company’s market dominance. Since then, the firm has continued to improve its same-store sales, revenue, and profitability, all while exceeding the top and bottom lines of analyst projections.

The firm has not only been resilient throughout the COVID-19 epidemic, but it has also continued to demonstrate gratitude to its shareholders by paying dividends. If Nasdaq is to be believed, the corporation has been steadily increasing its dividend payments every year since 2013.

Walmart’s large infrastructure expenditures have made the firm well-known among American customers, and the corporation’s dominance in the retail industry allows it to undercut competitors’ pricing. When added to WMT stock shown durability throughout the COVID-19 outbreak, this strength is nothing to scoff at.

  1. Walt Disney

In the United States and all throughout the world, Walt Disney is instantly recognizable. The legendary studio is the brains behind Mickey Mouse and many other pop culture icons, both animated and real-life.

The firm experienced significant damage because of the COVID-19 outbreak. The company’s income plummeted after it was forced to close its theme parks and stores in 2020. The stock’s worth also dropped, unfortunately.

Walt Disney, though, has made a remarkable recovery. Before the bear market in 2021 and 2022, the stock had risen to levels well above those seen before the epidemic.
Stock has lost over 36% of its value in the past year, but many investors and experts see this as a buying opportunity.

As a result of the corporation’s amusement parks operating at full capacity, the company is under less financial strain than it did before the epidemic.

Walt Disney also made a big impression by entering the streaming entertainment business with Disney+ and ESPN+, which have already begun to eat into Netflix’s market share. As a result of COVID-19, an increasing number of individuals were looking for low-cost ways to enjoy entertainment in the comfort of their own homes. The corporation is also the owner of Hulu, a major participant in the video-streaming market.

Thus, Walt Disney is once again enjoying rising profits from its theme parks and is further establishing itself as an entertainment behemoth. This, together with Disney’s long track record of success in the entertainment industry, solid financials, and growing influence in the online video market, points to more rises for Disney stock in the future.

Invest in ETFs that track consumer services.

When starting out in investing, buying individual stocks might seem like a huge undertaking. There is an alternative to conducting your own stock market research if you lack the knowledge or time to do so.

The market currently has a plethora of exchange-traded funds (ETFs) that use the combined capital of many investors to make investments in line with the ETFs’ stated investment objective. In this way, investors of all backgrounds and comfort levels can find a suitable fund.

Many exchange-traded funds (ETFs) exist for the sole purpose of giving investors diversified exposure to consumer service equities. These funds allow you to put your money into a diverse portfolio of stocks and bonds handpicked by some of Wall Street’s most reputable names.

If you choose this path, though, remember that investigation is still required. Investing in an ETF requires some research on the fund’s past performance, fee ratio, and investment philosophy to ensure that you understand precisely what you’re getting into.

Bottom Line

The effects of COVID-19 on the service sector are still being felt today. Some of these shifts — like a move to online shopping and work-from-home options — are proving to be here for the long haul, offering appealing investment opportunities in firms that serve these markets.

At the same time, recent market action has pulled values down, presenting multiple purchasing opportunities.

The road ahead of you is paved with possibilities, no matter which way you turn. However, there is also always the chance of loss. Always take the time to investigate investments before making them and bear in mind that intelligent investing selections often link to earnings.

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