These 2 companies join the ASX 200 next week

A very high-profile retailer during COVID-19 and a more traditional player are both joining the index in December.

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asx 200 rebalance represented by giant hand placing chess piece on top of cowering business man

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The S&P/ASX 200 Index (ASX: XJO) will welcome 2 new companies next week while kicking out 3.

The quarterly rebalance will take place for the start of trade Monday 21 December.

The share price of the 2 additions will be keenly watched that day as index funds will be forced to buy them up to synchronise with the ASX 200.

After a spectacular rise in its share price in 2020, Ltd (ASX: KGN) is a high-profile entrant.

The retailer has been a massive beneficiary of the COVID-19 pandemic and the resultant consumer shift to online shopping.

The Kogan share price started the year at $7.47 but had risen to $18.16 as of close of trade Friday. This represents a 143% climb, and that’s even after a correction from its dizzy high of $25.57 a couple of months ago.

Even with the effects of coronavirus starting to fade and e-commerce shares starting to rotate out of favour, some analysts are still bullish.

Kogan’s acquisition of Kiwi merchant Mighty Ape last week prompted Credit Suisse to whack a price target of $20.60 on the e-tailer’s shares.

Even a $350,000 fine for misleading conduct on the same day could not dampen investor enthusiasm.

Perhaps a less glamorous entrant to the ASX 200 is Reece Ltd (ASX: REH).

Reece is a more traditional retailer, with showrooms all over Australia selling bathroom and plumbing supplies.

The Reece share price has also fared well, starting the year at $11.38 but is now sitting at $14.96, which is a 31% increase.

With Australians performing more renovations while forced to stay at home may have had an effect, the company’s full year results in August also showed its business in the United States was booming.

Reece now has a market capitalisation of $9.66 billion while Kogan is $1.92 billion.

Why are there 3 removed and 2 added?

Despite only 2 additions, there are 3 removals this quarter because miner Iluka Resources Limited (ASX: ILU) demerged its royalty arm into Deterra Royalties Ltd (ASX: DRR). Both companies were retained in the ASX 200, meaning there was an excess member.

The 3 companies that will be making way for these rising stars are Avita Therapeutics Inc (ASX: AVH), Cooper Energy Ltd (ASX: COE) and Western Areas Ltd (ASX: WSA).

The share prices of this trio will also be on watch on 21 December, as index funds will be compelled to sell them off to remain faithful to the index.

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Returns as of 15th February 2021

Tony Yoo has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Avita Medical Limited and ltd. The Motley Fool Australia has recommended Avita Medical Limited and ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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