3 Outsourcing Stocks to Consider Amid Industry Challenges

The Zacks Outsourcing industry has witnessed significant growth, driven by multiple economic, technological and business factors. Key drivers include reduced costs, the onset of remote work, the rising focus on cybersecurity awareness, and the surge in trends such as Artificial Intelligence (AI) and Machine Learning (ML).Investors can consider ExlService Holdings, Inc. EXLS, Barrett Business Services, Inc.  BBSI and Broadridge Financial Solutions, Inc. BR from the Outsourcing market.About the IndustryOutsourcing involves delegating a company's internal operations to external resources or third-party contractors to enhance operational efficiency. Within the Zacks Outsourcing sector, one can find companies that provide human capital, business management and IT solutions, primarily catering to small and medium-sized enterprises. These services encompass a broad spectrum, including HR support, payroll management, administration of benefits, retirement planning and insurance services. Certain firms excel in delivering business process services, with a strong focus on transaction processing, analytics and global automation solutions. This outsourcing approach empowers businesses to concentrate on their core competencies while external experts manage these critical functions.What's Shaping the Future of the Outsourcing Industry?Strong Market Demand: The industry has witnessed significant growth post-pandemic, led by tech advancements and a rise in remote work. Revenues, income and cash flows have risen over these years, aiding many industry players to increase dividends.Consistent Growth in Business Process & IT Outsourcing: The higher demand for business process outsourcing services is fueled by greater flexibility, lower costs and enhanced service quality. The IT outsourcing market is also in great shape. In the future, outsourced IT services will cover an array of functions, including programming and technical support. Companies can outsource entire IT departments to cut costs and focus on vital tasks. A significant driver of outsourcing trends will be the shortage of in-house engineering talent.Urgency of Cybersecurity Measures: Increased public awareness and evolving cyber threats, such as ransomware and national-level cyberattacks, have led to a rising demand for robust data encryption and cybersecurity measures. Companies are focusing on employee security awareness training and breach detection systems to tackle these threats. The demand for outsourced cybersecurity services is rising as businesses are turning to it to reduce risks, maintain compliance and support scalability in their operations.Changing Industry Trends: Trends like the Internet of Things (IoT), cloud computing, AI and ML are gradually reshaping the outsourcing sector. These innovations promote efficiency, build a runway for innovations and provide a competitive edge to companies, changing the outsourcing landscape for businesses to streamline operations. For instance, IoT data can be collected, processed and analyzed in the cloud, enabling real-time decision-making and predictive maintenance for clients. By integrating AI and ML into customer support outsourcing, companies can provide swifter, effective and consistent customer support while optimizing operational costs.Zacks Industry Rank Indicates Dull Near-Term ProspectsThe Zacks Outsourcing industry, which is housed within the broader Zacks Business Services sector, currently carries a Zacks Industry Rank #217. This rank places it in the bottom 12% of 247 Zacks industries.The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates continued underperformance in the near term. Our research shows that the top 50% of Zacks-ranked industries outperform the bottom 50% by a factor of more than two to one.Before we present a few stocks that you may want to consider for your portfolio, let us take a look at the industry’s recent stock market performance and current valuation.Industry Outperforms Sector & S&P 500Over the past year, the Zacks Outsourcing industry beat the broader Zacks Business Services sector and the Zacks S&P 500 composite.The industry has rallied 16% over this period compared with the broader sector's 6.4% growth and the 8.4% rise of the Zacks S&P 500 composite.One-Year Price Performance Industry's Current ValuationOn the basis of forward 12-month price-to-earnings (P/E), commonly used for valuing outsourcing stocks, the industry is currently trading at 22.68X compared with the S&P 500’s 19.37X and the sector’s 21.56X.In the past five years, the industry has traded as high as 24.47X and as low as 11.86X, with the median being 20.55X, as the charts below show.Price to Forward 12-Month P/E Ratio3 Outsourcing Stocks Worth a LookOne year, the stock prices of three major outsourcing companies have had an impressive run on the bourse. EXLS, BBSI, and BR gained 46.2%, 32.2% and 16.7%, respectively. Broadridge Financial Solutions currently has a Zacks Rank #2 (Buy). The rest of the companies mentioned above carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here. Zacks Names #1 Semiconductor StockIt's only 1/9,000th the size of NVIDIA which skyrocketed more than +800% since we recommended it. NVIDIA is still strong, but our new top chip stock has much more room to boom.With strong earnings growth and an expanding customer base, it's positioned to feed the rampant demand for Artificial Intelligence, Machine Learning, and Internet of Things. Global semiconductor manufacturing is projected to explode from $452 billion in 2021 to $803 billion by 2028.See This Stock Now for Free >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Broadridge Financial Solutions, Inc. (BR): Free Stock Analysis Report ExlService Holdings, Inc. (EXLS): Free Stock Analysis Report Barrett Business Services, Inc. (BBSI): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks