Q2 STOCKS TO BUY

S&P 500 Rookies: Buy or Beware?

Taking a look at the performance of new stocks added to the S&P 500 Index (SPX) ahead of Citizens Financial Group Inc's (NYSE:CFG) inclusion tonight

Jan 29, 2016 at 11:49 AM
facebook X logo linkedin


As recently as Monday, Citizens Financial Group Inc (NYSE:CFG) was exploring record lows south of $20. Now, the regional bank is on pace for a weekly gain -- its first of 2016 -- of 4.8%. What changed? It was announced earlier this week that CFG will join the S&P 500 Index (SPX) after the close today, replacing metal component maker Precision Castparts Corp. (NYSE:PCP), which is being acquired by Berkshire Hathaway Inc. (NYSE:BRK.A). That got us thinking -- how do stocks tend to perform after joining the S&P 500?

Since 2015, the S&P has added 30 stocks -- 28 of which have been index members long enough for us to look at their one-month returns, according to Schaeffer's Senior Quantitative Analyst Rocky White. Of those 28, only 10 generated negative one-month returns, including airlines American Airlines Group Inc (NASDAQ:AAL) and United Continental Holdings Inc (NYSE:UAL). Of the 64% of stocks that were positive a month after joining the SPX, News Corp (NASDAQ:NWS) fared the best, adding 15%. However, that could've been due to fortuitous timing, as NWS was added just before the stock market's big October rally. 

Things seem to get a little grimmer after the one-month checkpoint, though. Twenty-three of 2015's S&P 500 joiners have three-month returns, but only 11 were positive, led by Activision Blizzard, Inc. (NASDAQ:ATVI). Apple Inc. (NASDAQ:AAPL) supplier Qorvo Inc (NASDAQ:QRVO) was the worst, down 34.2% in the three months since being added to the S&P.

The stats are even uglier going out six months, with just 16 of 2015's joiners showing returns. Of those, 75% generated negative returns, once again led by QRVO. Healthcare stocks HCA Holdings Inc (NYSE:HCA) and Baxalta Inc (NYSE:BXLT) paced the advancing elite, with the latter jumping on M&A news (which means it won't be an S&P member for too much longer).

160129SPXjoiners1

Going back to 2010, there have been 111 S&P 500 Index additions -- the majority of which were positive one, three, six, and 12 months out. However, the three-month checkpoint is the only one in which more than half of the S&P rookies had outperformed the broader index. By one year out, just 41.2% of the 85 eligible stocks had outperformed the broader S&P. 

160127spx1


In conclusion, history suggests there's no long-term payoff to investing in each new individual component of the S&P 500 Index. As White explained recently about new Nasdaq-100 Index (NDX) members: "[O]nce a stock is added to the index, it creates buying pressure ... especially among institutional investors who have funds that mimic the index." However, the added attention "raises investor awareness and expectations," which can "cause the stock price to get inflated" -- ultimately resulting in underperformance.
 
 

“Buy This Stock Now!” - Expert Who Called 11x On TSLA

He called a rare 11x on Tesla…

But now, thanks to Elon & Trump’s new alliance…

He says there’s a new opportunity that could be 1,000x BIGGER than Tesla – and it could completely revolutionize a $23 Trillion market.

It’s trading for less than $5 per share right now…

But it won’t be under the radar for long.

Discover The 1,000x Bigger Elon Opportunity Here

GRAND SLAM COUNTDOWN

 
 

Featured Articles from Trusted Partners:

👀Learn How Dividends Create Passive Income for Life
Receive $200 Off Motley Fool Epic. The Motley Fool Epic $299 discounted offer is based on $499/year list price. Introductory promotion for new members only. Take control of your money and your portfolio with Motley Fool Epic.

💵New Income System Could Pay You $4,243 Monthly
You could collect an average of $4,243 per month starting as early as next week with a new payout system for income investors. New registrations are being accepted for investors who want to be in a position to start with their first payout next week.

🚀Easy 92% Crypto Dividends (No Coins Required)
COIN stock doesn't pay a dividend... But there's actually a new way to collect a massive dividend that's indirectly based on the stock and offers a terrific monthly income (currently yielding nearly 92% on a forward basis).

🤝Free Advisor Match with Wiseradvisor.com
Don't leave your retirement to chance! Get matched with a trusted financial expert for FREE and make the most of your tax refund. Get started now.

⚠️Dennis Quaid's #1 Warning for Americans
Here's the thing: life doesn't come with guarantees. The economy shifts, markets stumble, and years of hard work could slip through your fingers like sand. But it doesn't have to be that way for you. So request a free copy of this Gold & Silver Guide that will arrive right to your doorstep when you act now.

 

 
 

Follow us on X, Follow us on Twitter