Apple, IBM and Others Will See Selling Into S&P 500 Rebalancing

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All indexes are objects in motion, despite their static nature, and the S&P 500 is just like the rest. On the close of trading Friday, there will be the quarterly rebalancing for the most watched index of all, the S&P 500. In a new research note from the Quantitative Strategies team at Jefferies, they are expecting a net sell of $1.458 billion in information technology, a net buy of $917 million in financials and a net buy of $800 million in health care. We recently highlighted the large buying expected at the end of next week in the Russell indexes.

They also highlighted four stocks that will have the largest trade flows on the sell-side, and the numbers are big for selling today.

Apple Inc. (NASDAQ: AAPL) has been on fire, before and after the split, and is no surprise to be a sell candidate. The Jefferies team expects almost $1.8 billion of the stock will hit the tape. That translates to about 19,672,131 shares. Excitement over the new iPhone 6 is starting to gain traction as rumors are flying about a larger screen and other new additions. Trading at just 12 times forward earnings, the stock remains a solid buy for investors, even after the index sells some. Shareholders are paid a 2.1% dividend. The Thomson/First Call price target for Apple is $94.42. The stock closed Thursday at $91.86 a share.

International Business Machines Corp. (NYSE: IBM) will see a large sell ticket to the tune of $453 million, if Jefferies is correct. That translates into 2,480,153 shares, which is a little over half the daily volume for the past 50 days. The stock is out of favor, and cheap, trading at a very low 12.5 times trailing earnings. IBM’s P/E relative to the S&P 500 Index has contracted by 33% since the end of 2006, and the stock is trading at just over 10 times many Wall Street 2014 earnings-per-share (EPS) projections, or a 35% discount to the S&P 500 Index. While the company has struggled with business in China, many trading models indicate that sales bottomed in the final quarter of 2013, and the path higher should be much easier. The stock pays investors a 2.4% dividend. The consensus price target is $195.47. IBM closed Thursday at $182.82.

ALSO READ: Eight Stocks That Will Be Bought Into Russell Index Rebalancing

Home Depot Inc. (NYSE: HD) will come under selling pressure at the close. Jefferies expects $281 million worth of stock will be sold. That translates 3,512,503 shares, which is about a half-day’s trading volume over the past 50 days. The company is just about to hit its sweet-spot when it comes to prime selling season. Remodeling tends to pick up as summer rolls around, and this year is no exception. During the second half of 2013, the National Association of Home Builders’ Remodeling Market Index, which measures how busy contractors are, was at its highest level since the spring of 2004. Investors are paid a 2.4% dividend. The consensus price target is $90.07. Home Depot closed Thursday at $80.44.

Lowe’s Companies Inc. (NYSE: LOW) is another retail name that will see some selling. Jefferies expects $209 million in stock will be sold. That translates into about 4,563,318 shares. Lowe’s is in pretty much the same catbird seat as its biggest competitor with summer upon us. The company has found that consumers like to bundle products and installation, reasoning that the process will be easier with a big-name brand than an independent contractor. This has led to strong sales for both of the giant retailers, and it has driven high floor traffic. The one-stop purchase and installation is a big focus going forward. Investors are paid a 2% dividend. The consensus price target is $52.23. Lowe’s closed Thursday at $45.90.

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