There has been lots of speculation on where the $7.5 billion in cash from the sale of Westfield Corp (ASX: WFD) could flow and there are three potential stocks that could be big beneficiaries, but are largely ignored in the debate.
The takeover of our largest shopping mall business by French-based Unibail will give existing shareholders in Westfield a US$2.67 cash payout, plus shares in either Unibail or an ASX-listed instrument for the merged group.
Most experts are tipping that the cash component will find its way into other shopping centre stocks like Scentre Group (ASX: SCG) and Vicinity Centres Re Ltd (ASX: VCX), but I am not so sure.
Westfield Corp is unique as it owns 35 US and UK shopping malls. Investors in this stock are largely looking for that overseas exposure, and I think Scentre (which owns Australian Westfield malls) and Vicinity (which also owns local shopping centres like the giant Chadstone centre) make poor alternatives.
The fact is, there probably isn't a good substitute for Westfield even if you looked at other property related stocks with offshore exposure like Lendlease Group (ASX: LLC).
This doesn't mean that these stocks won't get some buying interests from Westfield shareholders, but I think shareholders will need to settle for stocks outside offshore shopping malls.
In this regard, three stocks that will replace Westfield on the S&P/ASX stock indices (the stock is listed on a few of these benchmarks) are likely to outperform and could make ideal candidates.
Taking Westfield's spot on the S&P/ASX 20 (Index:^ATLI) (ASX:XTL) will be Origin Energy Ltd (ASX: ORG). The gas producer and retailer has been outperforming on the recent crude oil rally (gas and oil prices are correlated) and the stock is likely to keep running ahead on its positive operating outlook and its inclusion into the blue-chip index.
Several research papers have shown that stocks that are included into key indices tend to outperform the broader market for several months. One possible explanation for this is because passive funds that track the index will have to buy the stock.
Another stock that is likely to be lifted by the exit of Westfield is Tabcorp Holdings Limited (ASX: TAH). The betting group is slated to replace the mall king on the S&P/ASX ALL AUSTRALIAN 50 (Index:^AXAF) (ASX:XAF).
The third beneficiary is rural services group Elders Ltd (ASX: ELD). This stock will replace Frank Lowy's baby on the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) and that means it's likely to be well supported for the same reasons.
The index changes will happen on next Monday.
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