Getting a jump-start on other investors is part of investing. And analysts think there's an opportunity to leap ahead of a major index right now.
Six stocks, including S&P 500 members CoStar Group, Warner Bros. Discovery and Baker Hughes, are slated to join the important Nasdaq 100 index on Dec. 19. But all these stocks, analysts say, are already primed to jump up to 84% in the next 12 months, says an Investor's Business Daily analysis of data from S&P Global Market Intelligence and MarketSmith.
Getting any kind of edge in this difficult S&P 500 is tough. So when analysts point one out, it's important to pay attention.
"While the market does look ahead 12 to 18 months, I believe that inflation will ebb and flow, the Fed will stick to its hawkish stance, and a strong dollar is bad for U.S. earnings over these next 12 months, posing a significant challenge to any substantial upside within the U.S. stock market," said Kevin Philip, Partner, Bel Air Investment Advisors.
Leapfrogging The Nasdaq 100
It's been a rough year for most of the Nasdaq 100. But some of the bright spots are about to join.
How rough of a year is it? The Invesco QQQ Trust, which owns all the stocks in the Nasdaq 100, is down 29% this year. That's a poor showing even versus the S&P 500, which is off nearly 17%. And that stings as $154 billion is invested in the QQQ, making it one of the most popular ETFs.
Keep in mind that the Nasdaq 100 owns the 100 most valuable nonfinancial stocks trading on the Nasdaq. So to get added, that means these stocks have momentum behind them — relative to the Nasdaq 100 at large.
Case in point: Four of the six stocks getting added to the Nasdaq 100 are up this year. And analysts like them all, calling for each to be worth more in a year's time than they are now. In contrast, all the stocks kicked out of the Nasdaq 100 are down this year.
Analysts' Top Pick Among New Nasdaq 100 Members
Which newcomer to the Nasdaq 100 is analysts' favorite? That's entertainment giant Warner Bros. Discovery.
The company, which owns valuable media assets like Batman and Harry Potter films, has been a disaster this year. You can scoop up shares of the stock for 11.16 — half the price they started the year at.
And yet, with a market value of $27 billion, analysts think there's upside going into their inclusion in the Nasdaq 100. They're calling for the stock to trade for 20.63 a share in 12 months. If they're right, that implies a rally of nearly 85%, which is more than any stock joining the Nasdaq 100.
Out With The Old
In another interesting twist, the Nasdaq 100 is losing some of its technology influence. And what's coming in? Energy.
Two energy companies will join the Nasdaq 100 this year, Baker Hughes and Diamondback Energy. At the same time, all seven of the stocks getting tossed out of the Nasdaq 100 hail from either the technology sector or the closely related communication services sector.
And hopes are high for the S&P 500 stock now joining the Nasdaq 100. Baker Hughes' shares, already up 16% this year, are expected to rise another 19.1% in 12 months, analysts say. Likewise, analysts think Diamondback will rise another 36% in 12 months, after rising 23% this year.
Only one stock joining the Nasdaq 100 this year, GlobalFoundries, is in the technology sector. Here, though, analysts aren't nearly as optimistic. They think the stock will only gain 6% in a year's time, after rising 1% this year.
Not all stocks joining the Nasdaq 100 are winners yet. Rivian Automotive is down nearly 75% this year. But analysts think that stock will be worth nearly 80% more in 12 months than it is now.
Who says patience is a virtue?
Analysts' Favorite Nasdaq 100 Additions
Implied upside to analysts' 12-month price targets on stocks joining the Nasdaq 100 on Dec. 19
| Company | Symbol | In S&P 500? | Stock year-to-date ch. | Sector | Implied upside |
|---|---|---|---|---|---|
| Warner Bros. Discovery | Yes | -52.6% | Communication Services | 84.8% | |
| Rivian Automotive | No | -74.8 | Consumer Discretionary | 79.9 | |
| Diamondback Energy | Yes | 23.0 | Energy | 36.2 | |
| Baker Hughes | Yes | 16.4 | Energy | 19.1 | |
| CoStar Group | Yes | 2.8 | Industrials | 10.0 | |
| Global Foundries | No | 1.3 | Information Technology | 6.1 |
Sources: IBD, S&P Global Market Intelligence
Follow Matt Krantz on Twitter @mattkrantz
