Should Incyte, CBOE Holdings, Regency Centers Shareholders Fear the SPX Shakeup?

Incyte Corporation (INCY), CBOE Holdings, Inc (CBOE), and Regency Centers Corp (REG) could encounter short-term headwinds after joining the S&P 500 Index (SPX)

Feb 27, 2017 at 11:30 AM
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The S&P 500 Index (SPX) will do a bit of juggling this week. Three stocks that are joining the large-cap index are Incyte Corporation (NASDAQ:INCY)CBOE Holdings, Inc (NASDAQ:CBOE), and Regency Centers Corp (NYSE:REG). Tomorrow morning, INCY will replace Spectra Energy Corp. (NYSE:SE), which is being acquired by Enbridge Inc (USA) (NYSE:ENB); on Wednesday, CBOE will take the place of Pitney Bowes Inc. (NYSE:PBI); and REG will replace Endo International plc (NASDAQ:ENDP) on Thursday.

How might this shuffling of the SPX impact the stocks? In the charts below, Schaeffer's Senior Quantitative Analyst Rocky White breaks down what has happened to S&P joiners and leavers since 2010, across various time frames. Note that there are far more joiners than leavers, since the latter often fall off of the SPX due to a merger or acquisition.

S&P 500 Index SPX new stocks

Based on the data above, the S&P joiners underperform over the short term. For example, three months after joining the SPX, the typical stock averages a return of just 1.6%, with 47.5% outperforming the index. By contrast, the leavers sport an average three-month return of 4.5%, with over half outperforming the SPX.

It's a different story as you get further out, though. By six months, the typical joiner averages a gain of 4.2%, and by one year, the advance is up to 9.8%. Plus, the percent positive for the two time frames is 57.8% and 60%, respectively. By contrast, stocks that leave the SPX are negative, on average, six and 12 months out -- with percent positives well below 50%.

Drilling deeper into the three aforementioned joiners, INCY has been stair-stepping its way higher for the past year, at $131.50. Earlier today, in fact, the shares touched an annual high of $132.79. Not surprisingly, analysts have very bullish expectations toward Incyte Corporation, with 100% of them designating the stock a "buy."

CBOE has, likewise, fared well on the charts. Last week, the shares touched an all-time high of $81.37, and are just below that perch at $79.37. Unlike INCY, CBOE Holdings, Inc could still stand to benefit from an unwinding of skepticism on Wall Street. Over half of covering analysts rate the technical outperformer a tepid "hold," leaving room for upgrades. Plus, the stock sports a short-interest ratio (SIR) of 9.80, meaning it would take about two weeks for short sellers to cover their bearish positions, at CBOE's typical trading levels. Put simply, the shares could benefit from a short-squeeze situation.

Meanwhile, REG hasn't been so lucky, technically speaking. While the shares have been muscling higher since bottoming out in early December near $65, their current post at $72 is just a shade above the year-over-year breakeven level. If Regency Centers Corp encounters short-term turbulence after joining the SPX, the stock could be vulnerable to downgrades -- with eight of 14 analysts rating the shares a "buy" or better, and not a single "sell" opinion to be found.

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