The FTSE 100 typically has four reshuffle periods during the year. Due to the value of UK shares rising and falling everyday, it’s normal that some companies get smaller by market cap and drop down to the the FTSE 250. The opposite is also true. Firms that are doing well and growing can get promoted to the FTSE 100. With a rebalancing happening later this week, here are the likely newcomers.
An addition but little scope to buy
The final changes get announced on Wednesday (5 June), but based on the data I have a good indication of the companies that will get promoted.
The first one likely to join is Darktrace (LSE:DARK). The share price has jumped 101% over the past year, a key factor in helping to push the firm into the FTSE 100.
Half-year results in March helped to provide a large spike in the stock. Revenue was up 27.4% year on year. The company was able to produce another profitable period as in H1 2022, which gave investors confidence that the period of losses from 2020 and 2021 is now over.
The other big move came in April after the firm announced it had accepted an offer US private equity group Thoma Bravo. It has to go through a lot of red tape, so is only expected to be completed by the end of this year. Yet the stock has rallied to the corresponding offer level (which was at a premium).
Technically I could buy the stock until it likely gets delisted at the end of the year. But I don’t really see any value here, as the share price should trade close to the current level. If anything, the risk that the deal falls through is there, which could see the stock plummet.
A better candidate
The other option is Vistry Group (LSE:VTY). I see much more opportunity here for investors rather than Darktrace. The stock is up 70% over the past year and recently hit 52-week highs.
The homebuilder sometimes gets a bit forgotten in favour of the larger FTSE 100 rivals, but with the likely promotion this could change things. This would be for good reason, given the bounce-back that the company has enjoyed after a rocky couple of years for the property sector in general.
I still see high interest rates as a risk for the business going forward. We really aren’t out of the woods yet with high mortgage rates. This could continue to put pressure on people being able to afford to buy homes.
Yet on the whole, Vistry has managed to shake off the pessimists. The 2023 results that came out in April showed positive signs across the board. Revenue, completions, operating profit all jumped from 2022, in a sign that demand is recovering.
Even with the share price doing well, the price-to-earnings ratio is only 14.84. I’d say this is a fair value, but certainly not stretched considering the 70% jump. As a result, I’m thinking about adding this stock to my portfolio as the momentum could carry it higher still in coming months.
