As the markets ebb and flow, the large indexes are constantly buying and selling stocks to rebalance the portfolio to the proper weightings. Sometimes it is a nonevent, and sometimes some top names see some pretty good action. In a new research note, the Quantitative Strategies Team at Jefferies offers a look behind the curtain at some of the stocks that could see heavy buying as the month winds down. Often indexes do what is called “market on close” buying to do their rebalance. That guarantees uniform pricing.
Here are some of the stocks that will trade the highest number of shares on the buy side in the Russell rebalance.
Alcoa Inc. (NYSE: AA) stock took off last October from a long-term sideways base and is up almost 50%. Since being booted from the Dow Jones Industrial Average, it has had the last laugh as its stock price has climbed considerably in a relatively short amount of time. A lot of optimism is built into Alcoa’s rally based on firming aluminum prices and the prospect of a steady global economic recovery. Investors are paid a 0.9% dividend. The Thomson/First Call price target for the stock is $12. Alcoa has blown past that and closed Tuesday at $13.44.
Alliance Data Systems Corp. (NYSE: ADS) will see some big buying, and the index managers are getting a good price as the stock is down almost 25% in the past month. The company is a leading global provider of data-driven marketing and loyalty solutions serving large, consumer-based industries. The company creates and deploys customized solutions, enhancing the critical customer marketing experience; the result is measurably changing consumer behavior while driving business growth and profitability for some of today’s most recognizable brands. The consensus price for the stock is $289.80. Alliance Data closed Tuesday at $239.86 a share.
F5 Networks Inc.‘s (NASDAQ: FFIV) recent pullback may offer a better entry point for investors. The company provides solutions for an application-based world. F5 helps organizations seamlessly scale cloud, data center and software defined networking (SDN) deployments to successfully deliver applications to anyone, anywhere, at any time. F5 solutions broaden the reach of information technology through an open, extensible framework and a rich partner ecosystem of leading technology and data center orchestration vendors. This approach lets customers pursue the infrastructure model that best fits their needs over time. The consensus price target is $121.91, and shares closed Tuesday at $105.27.
Pandora Media Inc. (NYSE: P) has done well, but it is not the only one that has a big desire to be in the music streaming business. The stock has been knocked well off its March highs. The company did have some good news during earnings when it announced that content acquisition costs grew more slowly than revenue. Advertising revenue grew by 45% year-over-year, with total revenue jumping by 69% thanks to a near-tripling of subscription revenue, compared to just 26% growth in content acquisition costs. The consensus price target is $35.35. Pandora closed Tuesday at $23.92.
Realty Income Corp. (NYSE: O) will be seeing some big share buying. The company is a real estate investment trust (REIT) that owns more than 3,900 commercial properties owned under long-term lease agreements with regional and national chains, mostly in retail. Since its initial inception in 1969, it has paid 525 consecutive monthly dividends, hiking them 75 times since going public in 1994. That is the kind of dependability investors look for. Shareholders are paid a 5.2% distribution, which may include return of principal. The consensus price target is $41.58. Realty Income ended trading Tuesday at $43.40.
Starwood Property Trust Inc. (NYSE: STWD) has been on a steady rise and may be a solid play for income investors. The company focuses on investing in, financing and managing commercial mortgage loans and other commercial real estate debt investments, commercial mortgage-backed securities and other commercial real estate-related debt investments. Investors are paid an outstanding 8.3% dividend. The consensus price target is $26.68. The stock closed trading Tuesday at $23.70.
The rebalances for the Russell 1000 and the Russell 2000 happen on a regular basis, as changes in market pricing and predetermined weightings always make it necessary. Sometimes, investors can get in on the action, which can make sense, especially if one of the participants is a stock that you are looking to add to your portfolio. It also might work even better for investors looking to sell any of these names into strength.