All stock market indexes rebalance on a quarterly basis, as price movement constantly upsets the actual percentage that is supposed to be allocated. With the S&P 500 being the most influential index in terms of being a benchmark used by many portfolio managers, the quarterly rebalancing, which will happen this Friday, often means portfolio rebalancing, especially if they shadow the index to construct their portfolio. Shares will also be rebalanced in the S&P 400 and 600.
A new report from the Quantitative Strategies team at Jefferies says that the biggest selling action will be in health care and the consumer discretionary sectors. The biggest buying will be in information technology, with some tech titans seeing huge buying. We screened the Jefferies list for the five stocks that will see the biggest purchasing on the rebalance.
Microsoft Corp. (NASDAQ: MSFT) will see the largest buying of all the stocks in the index. Jefferies estimates that the total purchase will be $3.57 billion, which at current pricing would equate to 76,445,396 shares. That seems like an incredible amount of stock to buy, and it is, but on an average trading day, the software giant trades right about 30 million shares. The rebalance purchase will be about 2.5 days of normal trading volume. The one difference of course is that this will all be on the buy side. Average volume numbers include buying and selling.
Microsoft investors are paid a 2.4% dividend, and the Thomson/First Call consensus price target for the stock is $47.56. The stock closed at $46.69 a share on Friday.
Facebook Inc. (NASDAQ: FB) is another top technology stock that will see a large buy order on Friday. Jefferies is expecting a purchase of $1.89 billion. That translates into 24,393,291 shares at current pricing levels. Again, while it seems like a ton of stock, it is actually less than one full day’s trading total for the social media giant. Facebook traded an average of 36.3 million shares per day over the past 50 days.
The consensus price target for Facebook stock, which has been on a tear for the past year, is $86.18. Shares closed Friday at $77.48.
Coca-Cola Co. (NYSE: KO) is a top consumer staples stock that will see a large amount of buying. The iconic soft drink company will see a purchase of $744 million. This equals 17,945,007 shares. For Coke that is about 1.5 days of normal trading volume, as the stock has averaged 12.6 million shares per day over the past 50 days of trading.
Investors are paid a solid 2.95% dividend. The consensus price target for Coca-Cola stock, which remains a favorite of legendary investor Warren Buffett, is $45.38. The stock closed on Friday at $41.46.
Morgan Stanley (NYSE: MS) is a top financial services stock that is expected to see some big buying on the rebalance. The Jefferies team expects a purchase of $488 million. This will equal 13,942,857 shares at last Friday closing price. The volume on the rebalance purchase will be equal to about 1.7 days of normal trading. Morgan Stanley has traded 8.1 million shares per day on average over the past 50 days.
Morgan Stanley shareholders are paid a 1.14% dividend. The consensus price target for the Wall Street powerhouse brokerage and bank is $35.15. The stock closed right near that level at $35.01 on Friday.
3M Co. (MMM) is an industrial name that will see some significant buying. Jefferies anticipates a total purchase of $407 million on the rebalance. This will equal approximately 2,827,567 shares of stock. That is about 1.6 days of average trading volume. 3M has averaged 1.94 million shares a day over the past 50 trading days.
The shareholders of 3M are paid a 2.4% dividend. The consensus price target for the company is set at $152.46, and shares ended Friday at $143.94.
Again, none of these stocks will likely see super volume that could push the price tremendously. However, managers that don’t actually index may buy shares in front of the rebalance, and that combined with the buying could move the stocks higher.