Credit Suisse Sees These Stocks as Likely Additions to the S&P 500

October 9, 2013 by Lee Jackson

One of the reasons that investors look for stocks that may be added to the S&P 500 is that those that are added are immediately bought by portfolio managers who run 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 Tuesday 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. The final selections are always at the discretion of the S&P 500 selection committee. Here are the stocks that are favorites at Credit Suisse for inclusion to the S&P 500. They are listed in order of market capitalization, not as having a higher chance of inclusion.

LinkedIn Corp. (NYSE: LNKD) is one of the hot momentum stocks taking a pretty good hit from the current debt ceiling fiasco in Washington, D.C. It is also a new candidate to hit the Credit Suisse screen. The company, through its proprietary platform, allows members to create, manage and share their professional identity online; build and engage with their professional networks; access shared knowledge and insights; and find business opportunities. The Thomson/First Call price target for the stock is $257. LinkedIn closed Tuesday down more than 5% at $222.73.

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 12.1% distribution, which may be lowered. Annaly closed Tuesday at $11.44.

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. Verisk closed Tuesday at $64.94.

Affiliated Managers Group Inc. (NYSE: AMG) is a solid financial services company that recently 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 $197.50. The stock closed Tuesday at $182.67.

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 $30. The stock closed Tuesday at $21.80

Alliance Data Systems Corp. (NYSE: ADS) is another new name to make the cut on the Credit Suisse list. The company provides marketing and loyalty solutions primarily in North America. The company operates in three segments: LoyaltyOne, Epsilon, and Private Label Services and Credit, and it was recently upgraded to a buy at BMO Capital. The consensus price target for the stock is $220. The stock closed Tuesday at $215.51.

LKQ Corp. (NASDAQ: LKQ) makes its debut on the new Credit Suisse list. The company provides replacement parts, components and systems needed to repair vehicles, primarily cars and trucks in the United States, the United Kingdom, Canada, Mexico and Central America. The company operates through Wholesale/North America, Wholesale/Europe and Self Service. The consensus price target for the stock is posted at $33. LKQ closed Tuesday at $31.03.

Mohawk Industries Inc. (NYSE: MHK) is also a newcomer to the Credit Suisse list. The company’s stock has been on fire over the past year as investors added stocks that were benefiting from the housing upturn. Mohawk is known for floor covering products for residential and commercial applications in the United States and for residential applications in Europe. The consensus price target is $150. Mohawk closed Tuesday at $125.

Tractor Supply Co. (NASDAQ: TSCO) rounds out the list of candidates and is another new addition. Over the past 10 years, the company has delivered total returns of almost 24% per year to investors while the market has delivered 5.4%. That is an outstanding investment. The consensus price target is placed at $67.25. Investors are paid a small 0.8% dividend. The stock closed Tuesday at $65.49.

The key for investors is to buy before the actual inclusion to the index. Since 2009, addition outperformance has occurred only before the official S&P announcement. Forecasting the change is essential to capturing alpha in the prepositioning trade. At least the Credit Suisse team has boiled down a large list to their nine favorite names.

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