Each quarter, indices like the ASX 200 are rebalanced to reflect companies with the largest weighted market capitalisations, ensuring that the market is liquid and tradeable. Companies added to the S&P/ASX 200 (INDEXASX: XJO) index can experience an increase of demand as fund managers and institutions balance and hedge their portfolios.
Here are three new additions to the ASX 200 that could be a potential buy.
Austal Limited (ASX: ASB)
Austal is an Australian shipbuilder and prime contractor for global defence agencies. Austal has designed and constructed more than 300 commercial and defence vessels for more than 100 operators in 54 countries worldwide. The Austral share price has surged more than 78% in 2019, trading at 8-year highs. The company’s share price has surged on the back of a strong half-year report and profit upgrades for the current financial year. The better than expected results have been driven by increasing demand from the US Navy, which looks to expand the number of Littoral Combat Ships (LCS) in its fleet.
Clinuvel Pharmaceuticals Limited (ASX: CUV)
Clinuvel has been one of the best performers on the ASX in 2019 with the company’s share price rocketing more than 200% in 2019, peaking at $40.00 in June. This amazing run saw the company’s market cap climb to a high of $1.4 billion from $490 million a year ago. Clinuvel is a biopharmaceutical company – its flagship drug Scenesse is designed to protect patients who suffer from sun-related diseases. Scenesse is a slow release implant drug that activates the production of melanin (the skins natural defence against UV light) helping patients who are hypersensitive to exposure to light. The monster rally in Cluinuvels share price has been driven by interest from institutions and the success of its key product in trials. July is an important month for Clinuvel as the company waits to hear from the US FDA on the 8th of this month for approval to market Scenesse.
Service Stream Limited (ASX: SSM)
Service Stream is a networks service operator that provides construction and maintenance of mobile and fixed communications in addition to water, gas, and electricity infrastructure. The company’s share price is trading near all-time highs following strong half-year results earlier this year. Service Stream has a strong fundamentals with a price-to-earnings ratio of 17.2, in comparison to the industry, which trades at 26 times earnings. Service Stream has benefited from the rollout of the NBN as half of its business relates to maintaining critical telecommunications infrastructure around Australia. In addition, the acquisition of Comdain Infrastructure earlier this year has Service Stream well positioned to take advantage of structural changes such as the 5G network and smart metres.
In my opinion, all these companies have had substantial runs into the quarterly rebalance as many traders and investors pile in. A more prudent strategy would be to keep these companies on a watchlist and wait for a pull-back before buying.
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Motley Fool contributor Nikhil Gangaram has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.