Investing

Credit Suisse Identifies the Next 10 Stocks Likely to Join the S&P 500 Index

One of the big reasons that investors look for stocks that may be added to the S&P 500 is that the stocks that make the cut immediately become targeted by portfolio managers that run static S&P 500 portfolios like the SPDR S&P 500 (NYSEMKT: SPY). These funds are designed to give investors the ability to own all the stocks in the index in one liquid vehicle.

In a new research report out yesterday from Credit Suisse, the analysts have updated their list of likely additions to the popular index. The list is based on S&P’s eligibility criteria such as market cap, liquidity, domicile, public float, sector balance and financial viability. However, the final selections are always at the discretion of the S&P 500 selection committee. Here are the 10 stocks that are favorites at Credit Suisse for inclusion to the S&P 500.

General Growth Properties Inc. (NYSE: GGP) is a rags to riches story. During the height of the recession and market sell off five years ago, the company almost went out of business. At the market lows in March of 2009, the stock traded under $1. Now it is a possible candidate for the S&P 500. The Thomson/First Call price target for the stock is $23, and investors receive a 2.2% distribution. The company is a real estate investment trust (REIT), and distributions may contain return of principal.

Annaly Capital Management Inc. (NYSE: NLY) may be a surprise favorite for the index. The company is a leveraged mortgage REIT and has been hammered as rates have moved higher. The consensus price target for the stock is $13. Investors are currently paid a huge 13.6% distribution, which may be lowered.

Ametek Inc. (NYSE: AME) is a favorite for the list that is currently in the mid-cap 400 index. The company hit a 52 week high two weeks ago and continues to show strong earnings growth. The consensus price target for the stocks is at $46. Investors are paid a 0.5% dividend.

Hertz Global Holdings Inc.‘s (NYSE: HTZ) second-quarter profit leaped 31%, as demand for car and equipment rentals drove significant revenue growth. In the latest period, Hertz recorded a profit of $121.4 million, compared to $92.9 million in the year-ago period. On a per-share basis, earnings rose to $0.27 from $0.21. Adjusted per-share earnings were $0.45 versus $0.35 . Revenue climbed 22% to $2.71 billion. The consensus price objective for the stock is $29.25.

Verisk Analytics Inc. (NASDAQ: VRSK)  provides proprietary data, analytics methods and embedded decision support solutions for detecting fraud in property and casualty insurance, financial and health care industries, primarily in the United States. The consensus price objective for the stock is $66.

Equinix Inc. (NASDAQ: EQIX) is not only a possible candidate, but a top stock to buy at many of the Wall Street firms we cover. The company blew away second-quarter earnings estimates. Total revenue in the reported quarter was $525.7 million, up 15.0% from the year-ago quarter. The company witnessed decent revenue growth across all three geographic regions of the network vertical, especially in Asia-Pacific. The consensus price target for this data center services leader is $245.

Affiliated Managers Group Inc. (NYSE: AMG) is a solid financial services company that recently also has been hitting 52-week highs. The company provides investment management services to mutual funds, institutional clients and high net worth individuals in the United States. The consensus price target for the stock stands at $180.

Realty Income Corp. (NYSE: O) is another REIT that may be poised to enter the S&P 500. The company poster stellar second-quarter results, with revenue up 63% and funds from operations per share up 22%. The consensus target for the stock is $46, and investors are paid a solid 4.9% distribution.

J.B. Hunt Transportation Services Inc. (NASDAQ: JBHT) provides transportation and delivery services in the continental United States, Canada and Mexico. The consensus estimate for this top trucking name is $80.50. Investors receive a small 0.8% dividend.

SL Green Realty Corp. (NYSE: SLG) is yet another REIT that may be on its way to the S&P 500. The firm engages in the property management, acquisitions, financing, development, construction and leasing. It also provides tenant services to its clients. The consensus target price for the stock is at $96, and investors are paid a 1.4% distribution.

American Capital Agency Corp. (NASDAQ: AGNC) is another mortgage REIT, and one would suspect the sector may be underrepresented in the S&P 500. Like all mortgage REITs, it has been hammered, especially by short-sellers betting on higher rates compressing spreads. The consensus price target for the stock is $25.50, and investors receive a gigantic 19.4% distribution, which may also be lowered.

The key for investors is to buy before the actual inclusion to the index. Since 2009, outperformance has occurred only before the official S&P announcement, so forecasting the change is essential to capturing alpha in the prepositioning trade. At least the Credit Suisse team has boiled down a list to their 10 favorite names. Investors now have to discern the stocks they think most likely to go from out of the top 10.

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