As Standard & Poor’s gears up to prep the next group of companies to join the S&P 500, investors are trying to game the system by buying stocks that have a strong chance of graduating into this famous index.
In the first part of this two-part series, I looked at a group of companies that were solid candidates, according to Credit Suisse, and also provided a look at the most impressive companies in the S&P 400 mid-cap index. The top firms in that index often matriculate to the S&P 500 when they reach maturity.
I took a close look at all of the companies that appeared in the first part of this series, and there were some great companies in the mix. If price were no object, I’d be a huge fan of:
Oceaneering International (NYSE:OII), which is prospering form the ongoing trends toward undersea naval warfare and undersea oil drilling. Oceaneering International (NYSE:OII) is poised to grow at a sustained double-digit pace, which is something few other defense contractors can say.
Cree, Inc. (NASDAQ:CREE): LED lighting is a revolutionary game-changer, and Cree, Inc. (NASDAQ:CREE)‘s heavy emphasis on R&D is leading the charge towards ever-lower prices for these low-energy light sources that also have remarkable longevity compared to regular bulbs. Still, profit margin gains may be tough in a very competitive environment.
Polaris Industries Inc. (NYSE:PII): If Winnebago Industries, Inc. (NYSE:WGO) recreational vehicles are suitable for retirees, Polaris Industries Inc. (NYSE:PII) has become the go-to name for activity-oriented vehicles. Notably, it has a revenue base that is four times larger than Winnebago Industries, Inc. (NYSE:WGO) as well. If S&P wants to position for future demographic trends, then Polaris is a great choice.
I love these companies, but I don’t love their stock prices, and I’d prefer to wait for some sort of pullback before singing their praises. That said, there are two investment ideas that hold great appeal on their own. If they get added to the S&P 500, then they are also set up for a timely trade.
1. HollyFrontier Corp (NYSE:HFC) |
![]() Yet the sell-off has been a bit myopic. After all, the U.S. is in the midst of an energy boom, and our domestic crude oil, and the refined products that will ensue, are expected to replace imported refined products. The key takeaway: HFC and other refiners should see rising volumes in coming years due to import displacement. Meanwhile, shares are attractively priced at less than 10 times projected 2014 profits. And though the company’s stated formal dividend equates to 30 cents a share per quarter, the company keeps delivering special one-time dividends as well, and if you tally them up, the trailing 12-month yield for this stock is 6%. |
2. Reinsurance Group of America Inc (NYSE:RGA) |
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