U.S. Services Sector Resilience Amid Tariffs and Uncertainty: Contrarian Opportunities in Transportation, Utilities, and SaaS

The June 2025 ISM Services PMI rebounded to 50.8%, narrowly escaping contraction and signaling a fragile but tangible recovery in the U.S. services sector. While employment and backlogs remain under pressure, this data masks a critical truth: select industries are thriving by adapting to tariffs, inflation, and uncertainty through innovation, cost discipline, and strategic pivots. For contrarian investors, the current environment offers a rare chance to capitalize on undervalued stocks in transportation, utilities, and software-as-a-service (SaaS) sectors—areas where companies are proving resilient despite macro headwinds.

Contrarian Logic: Where Pain Points Become Profit Drivers

The ISM report highlights a sector-wide struggle: employment contracted for the third time in four months, and backlogs hit a 17-month low. Yet, five industries expanded employment in June—including Transportation & Warehousing, Utilities, and SaaS-linked sectors like Information—while others slashed costs or shifted supply chains to offset tariff impacts. This divergence creates opportunities in areas where companies are outperforming their peers by mitigating risks.

Sector Breakdown: Where to Look for Contrarian Wins

1. Transportation & Logistics: Tariff Pressures, But Hidden Gains

While tariffs on steel, aluminum, and automobiles have raised input costs, companies with global scale or alternative supply chains are thriving. For example:
- Railroads and Ports: Firms like Union Pacific (UNP) and CSX (CSX) benefit from rising freight demand as companies shift from air/sea imports to domestic rail.
- Third-Party Logistics (3PL): Companies like XPO Logistics (XPO) are optimizing routes and consolidating shipments to reduce tariff impacts.

Investors should favor firms with exposure to U.S.-focused supply chains or those leveraging FTZs (Foreign Trade Zones) to defer tariffs.

2. Utilities: Stabilizing Demand and Regulatory Tailwinds

Utilities (XLU) are proving remarkably insulated. Key drivers:
- De-risked Supply Chains: U.S. energy independence (via shale gas and renewables) reduces reliance on tariff-hit imports.
- Rate Hikes and Inflation Adjustments: Regulated utilities like NextEra Energy (NEE) and Dominion Energy (D) are passing costs to consumers through approved rate increases.
- Renewables Boom: Tax incentives for solar/wind projects are offsetting inflation pressures.

Utilities offer a rare combination of stable cash flows and defensive positioning—a contrarian bet against broader market volatility.

3. SaaS: Pricing Power and AI-Driven Efficiency

The SaaS sector faces headwinds from rising infrastructure costs and cautious buyers, but companies with pricing discipline and AI tools are thriving. Examples:
- Outcome-Based Contracts: Salesforce (CRM) and Adobe (ADBE) are shifting to usage-based pricing, aligning revenue with customer ROI.
- AI Cost Optimization: Microsoft (MSFT) and Snowflake (SNOW) are using AI to streamline cloud operations and reduce latency, offsetting hardware tariffs.

The sector's 12-month forward P/E of 28x is below its 3-year average of 34x—a sign of undervaluation despite macro risks.

Investment Strategy: Buy the Dip, Focus on Resilience

1. Transportation: Buy UNP and XPO for their logistics diversification.
2. Utilities: Add NEE and XLU ETFs for steady dividends and inflation hedges.
3. SaaS: Prioritize CRM and MSFT for their pricing power and AI investments.

Final Take: The Resilience Play Is Now

The ISM rebound is no fluke—it reflects a sector adapting to tariffs through smarter strategies. Investors who focus on companies with cost mitigation tools, diversified supply chains, or pricing power will profit as markets reassess these sectors' true resilience. The contrarian edge here is clear: buy the dips in transportation, utilities, and SaaS—before the broader recovery lifts their valuations.

The author holds no positions in the mentioned stocks. Always conduct independent research before investing.