Each quarter, indices like the S&P/ASX 200 (INDEXASX: XJO) are rebalanced to reflect companies with the largest weighted market capitalisations, ensuring that the market is liquid and tradeable. Companies added to the ASX 200 can experience an increase in demand as fund managers and institutions balance and hedge their portfolios.
With that in mind, here are 2 new additions to the ASX 200 that could be a potential buy.
AP Eagers Ltd (ASX: APE)
AP Eagers is Australia's oldest listed automotive retail group, operating dealerships across the country. The asset-rich company recently acquired market leader Automotive Holdings Group (AHG), providing AP Eagers with a $4.8 million contribution to underlying operating profit before tax. In addition, AP Eagers believes the progressive integration of AHG could result in synergy savings of $30 million and an annualised $13. 5 million in savings by the end of December 2019.
The AP Eagers share price more than doubled in 2019, hitting an all-time high of $14.49. The company's share price came under pressure in early November after AP Eagers released an announcement to the market, warning that external conditions continue to make the automotive retail sector challenging. Despite concerns in the short term, many analysts believe that the automotive cycle is bottoming and a revival in the sector will see AP Eagers derive significant revenue and cost synergies
Ingenia Communities Group (ASX: INA)
Ingenia is a real estate group that owns, develops and manages a portfolio of senior lifestyle communities and family holiday parks in Australia. The company has been a silent achiever in 2019, with the Ingenia share price climbing nearly 60% for the year.
Earlier this year Ingenia exceeded guidance for the third consecutive year when the company reported full-year results for FY19. Highlights for the financial year included a 26% increase in EBIT to a record $61.5 million and 21% increase in revenue of $228.7 million. Ingenia also saw an underlying EPS increase of 19% and 26% increase in operating cash flow of $59.3 million.
Ingenia has a diverse portfolio of land lease communities in Queensland, New South Wales and Victoria. The company looks to develop 336 new homesites and has 10 projects due for completion in FY20. Ingenia boasts a rental occupancy rate of 91%, giving investors exposure to a reliable rental yield. In addition, the company offers exposure to the ageing Australian population as retirees look to downsize.
Should you buy?
The addition of a company to the ASX 200 can lead to an increased demand in their share registry, because many funds have a mandate that requires them to have exposure to companies on a certain index.
In my opinion, the most prudent strategy would be to keep these new additions to the index on a watchlist and let price action dictate before making an investment decision.
