A number of ASX shares are about to be included into the S&P/ASX 200 Index (Index:^AXJO) next month and it pays to keep an eye on potential new members.
This is because stocks that are included into a key index tend to outperform, while those that are dropped usually underperform.
Morgan Stanley had a go at forecasting who will get swept up in the quarterly index rebalancing act, reported the Australian Financial Review.
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Who's in and who's out
The broker is tipping lithium miner Pilbara Minerals Ltd (ASX: PLS) and aged care operator Estia Health Ltd (ASX: EHE) will be dumped.
The broker believes that gold miner Perseus Mining Limited (ASX: PRU) would be among the most likely stocks to be indoctrinated into the ASX 200 club with the stock more than doubling in value over the past year. The miner's market cap stands at around $1.1 billion, thanks in no small part to the surging gold price.
The price of the precious metal is likely to test new highs this year and I have highlighted a few reasons for my bullish take on the commodity a few weeks ago.
This means the Perseus share price could benefit from two tailwinds this year!
Another rising star
The other new entrant is likely to be datacentre and networking company Megaport Ltd (ASX: MP1), added Morgan Stanley.
The company recently completed a $50 million placement to institutional, sophisticated and professional investors at $9.50 a new share. Megaport is looking to raise another $15 million through a share purchase plan (SPP) at the same price.
But these may not be the only new additions. Standards and Poor's (S&P), which manages the index, could include another five changes to the ASX 200.
Other stocks in the ASX 200 shuffle
The other stocks that are at risk of being kicked out of the stock benchmark include wealth platform Hub24 Ltd (ASX: HUB), funds management services company Pinnacle Investment Management Group Ltd (ASX: PNI), online lottery group Jumbo Interactive Ltd (ASX: JIN), drug maker Mayne Pharma Group Ltd (ASX: MYX) and lithium carbonate supplier Orocobre Limited (ASX: ORE).
It isn't a sure thing that these stocks will be expelled, but if any or all of them get the chop, Morgan Stanley reckons that the next five that could be included are (listed in order of rank) property trust Centuria Office REIT (ASX: COF), litigation funder Omni Bridgeway Ltd (ASX: OBL), biotech Mesoblast limited (ASX: MSB) and insurance broker AUB Group Ltd (ASX: AUB).
S&P skipped the rebalancing exercise in March due to the market volatility caused by the COVID-19 pandemic.
