While the market rally this year has been an investor’s dream after the nightmare of last year, the reality is that a handful of red-hot technology stocks running higher on the back of the Artificial Intelligence explosion has created almost all of the gains in the S&P 500 and the Nasdaq. Because of the huge move higher by just a few stocks, the Nasdaq is doing a very rare one-off rebalancing of the portfolio.
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The company announced on July 7 that it will do a special rebalance of the Nasdaq 100 Index, which will take effect before the market opens on July 24. The Nasdaq 100 index comprises 100 of the largest nonfinancial companies that trade on the exchange and is often seen as a proxy for growth stocks. Representatives from Nasdaq said a special rebalance can be used from time to time to “address overconcentration in the index by redistributing the weights.”
It should be noted that while the index is already rebalanced on a quarterly basis, Nasdaq tries to keep the five biggest stocks below a 40% combined weighting in one rebalance per year designated as the annual adjustment, according to the firm’s ongoing stated methodology.
According to the team at Wells Fargo, the last time a special rebalance was done in May of 2011, the stocks that were poised to be upsized the most were up an average of 3.9% during the 10 days prior to the actual event.
Seven top companies in the index will be upsized, and all are Buy rated across Wall Street. It’s important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.
Analog Devices
This stock could very well continue to benefit from the increase in information technology and 5G spending. Analog Devices Inc. (NASDAQ: ADI) is a leader in the design, manufacture, and marketing of analog, mixed-signal, and digital signal processing integrated circuits (ICs) for use in industrial, automotive, consumer, and communication markets worldwide. The company offers signal processing products that convert, condition, and translate real-world phenomena, such as temperature, pressure, sound, light, speed, and motion into electrical signals.
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Analog Devices has among the best end-market exposure with high communications and aerospace/defense market exposure, in addition to offering investors a powerful 5G content growth story. Plus, acquisitions over the last few years, like Linear Technology and Hittite Microwave, should provide revenue and additional cost synergies.
Analog Devices investors are currently paid a 1.80% yield. The Truist Financial team has a Buy rating on the company with a price target of $215. The Wall Street consensus price target is posted lower at $205.33. Analog Devices shares closed Wednesday at $195.40.
Automatic Data Processing
This is an old-school company that looks to have a ton of upside from current trading levels. Automatic Data Processing, Inc. (NYSE: ADP) provides cloud-based human capital management solutions worldwide. It operates in two segments, Employer Services and Professional Employer Organization (PEO). The Employer Services segment offers strategic, cloud-based platforms, and human resources (HR) outsourcing solutions.
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The company’s offerings include payroll, benefits administration, talent management, HR management, workforce management, insurance, retirement, and compliance services, as well as integrated HCM solutions.
The PEO Services segment provides HR outsourcing solutions to small and mid-sized businesses through a co-employment model. This segment offers benefits packages, protection and compliance, talent engagement, expertise, comprehensive outsourcing, and recruitment process outsourcing services.
24/7 Wall St.Investors are paid a solid 2.21% dividend. Barclays has an Overweight rating on the shares with a $275 target price objective. The consensus target is posted at $230.88. The stock closed Wednesday at $224.99.
Booking Holdings
The travel giant could get a big lift during the rebalance. Booking Holdings Inc. (NASDAQ: BKNG) provides travel and restaurant online reservations and related services worldwide. The company operates Booking.com, which offers online accommodation reservations; Rentalcars.com, which provides online rental car reservation services; and Priceline, which offers online travel reservation services, and consumers hotel, flight, and rental car reservation services, as well as vacation packages, cruises, and hotel distribution services.
The company also operates Agoda, a provider of online accommodation reservation services, as well as flight, ground transportation, and activities reservation services. In addition, the company operates KAYAK, an online meta-search service that allows consumers to search and compare travel itineraries and prices, comprising airline ticket, accommodation reservation, and rental car reservation information; and OpenTable for booking online restaurant reservations. Further, it offers travel-related insurance products, restaurant management services to consumers, travel service providers, and restaurants; and advertising services.
Wedbush has an Outperform rating and a huge $3060 target price. The consensus is posted lower on Wall Street at $2,880.04. The shares closed Wednesday at $2788.47.
Gilead Sciences
This company is trading a very reasonable 11.3 times estimated 2023 earnings and has big-time upside potential. Gilead Sciences, Inc. (NASDAQ: GILD), a research-based biopharmaceutical company, discovers, develops, and commercializes medicines in the areas of unmet medical need in the United States, Europe, and internationally.
The company provides Biktarvy, Genvoya, Descovy, Odefsey, Truvada, Complera/ Eviplera, Stribild, and Atripla products for the treatment of human immunodeficiency virus (HIV) infection; Veklury, an injection for intravenous use, for the treatment of coronavirus disease 2019; and Epclusa, Harvoni, Vosevi, Vemlidy, and Viread for the treatment of liver diseases. It also offers Yescarta, Tecartus, Trodelvy, and Zydelig products for the treatment of hematology, oncology, and cell therapy patients.
In addition, Gilead provides Letairis, an oral formulation for the treatment of pulmonary arterial hypertension; Ranexa, an oral formulation for the treatment of chronic angina; and AmBisome, a liposomal formulation for the treatment of serious invasive fungal infections.
Gilead Sciences, Inc. has collaboration agreements with Arcus Biosciences, Inc.; Pionyr; Tizona; Tango Therapeutics, Inc.; Jounce Therapeutics, Inc.; Galapagos; Janssen; Japan Tobacco, Inc.; Gadeta; Bristol-Myers Squibb Company; Merck; and Novo Nordisk A/S.
Investors will be very happy to take a 3.94% dividend to the bank every quarter. BMO Capital Markets has an Outperform rating and one the highest price objectives across Wall Street of $100. That is versus the much lower consensus target of $91.04 and Wednesday’s closing print of $76.38.
Intuitive Surgical
The surgical robotic leader has been seeing a strong uptick in procedures since the end of the Covid pandemic. Intuitive Surgical, Inc. (NASDAQ: ISRG) develops, manufactures, and markets products that enable physicians and healthcare providers to enhance the quality of and access to minimally invasive care in the United States and internationally.
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The company offers the da Vinci Surgical System to enable complex surgery using a minimally invasive approach; and Ion endoluminal system, which extends its commercial offerings beyond surgery into diagnostic procedures enabling minimally invasive biopsies in the lung.
Intuitive Surgical also provides a suite of stapling, energy, and core instrumentation for its surgical systems; progressive learning pathways to support the use of its technology; a complement of services to its customers, including support, installation, repair, and maintenance; and integrated digital capabilities providing connected offerings, streamlining performance for hospitals with program-enhancing insights.
24/7 Wall St.Citigroup has a Buy rating and a Wall Street-high $400 target price objective. That is versus the much lower $322.05 consensus and Wednesday’s closing print of $347.59.
Mondelez
This is a consumer sector giant that makes good sense for conservative accounts. Mondelez International, Inc. (NASDAQ: MDLZ) manufactures and markets snack food and beverage products worldwide. The company offers biscuits, including cookies, crackers, and salted snacks; chocolates, gums, and candies; powdered beverages and coffee; and cheese and grocery products.
Its primary brand portfolio includes LU, Nabisco, and Oreo biscuits; Cadbury, Cadbury Dairy Milk, and Milka chocolates; Trident gum; Jacobs Kaffee; and Tang powdered beverages.
Mondelez International, Inc. sells its products to supermarket chains, wholesalers, supercenters, club stores, mass merchandisers, distributors, convenience stores, gasoline stations, drug stores, value stores, and other retail food outlets through direct store delivery, company-owned and satellite warehouses, distribution centers, and other facilities, as well as through independent sales offices and agents.
Shareholders are paid a 2.17% dividend. The Jefferies price target for the Buy rated stock is $86, while the consensus price target for the stock is posted at $81.40. The shares closed Wednesday at $71.40.
Starbucks
The ubiquitous retail giant has traded down some recently and is offering a very solid entry point. Starbucks Corporation (NASDAQ: SBUX) operates as a roaster, marketer, and retailer of specialty coffee worldwide. The company operates in four segments: Americas; Europe, Middle East, and Africa; China/Asia Pacific; and Channel Development. Its stores offer coffee and tea beverages, packaged roasted whole bean and ground coffees, single-serve and ready-to-drink coffee and tea products, juices, and bottled water.
The company also licenses its trademarks through licensed stores, and grocery and national food service accounts. The company offers its products under the Starbucks, Teavana, Tazo, Seattle’s Best Coffee, Evolution Fresh, La Boulange, Ethos, Starbucks VIA, Seattle’s Best Coffee, Frappuccino, Starbucks Doubleshot, Starbucks Refreshers, and Starbucks Discoveries Iced Café Favorites brand names.
Shareholders are currently paid a 2.15% yield. BofA Securities has a Buy rating with a $131 target price, and the stock is on the firm’s US1 list of top stock picks. That compares with a consensus target across Wall Street of $114.80. The stock closed trading at $101.14 on Wednesday.
If history holds true and the market stays reasonably intact, these seven companies should see some solid buying up to the rebalance, and all are outstanding companies for long-term growth investors to feel very comfortable owning.
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