The time of year has come as leading indexes do their rebalancing, shifting names in and out to reflect the latest market conditions.
For the most part, changes are minimal. But in the wake of an ongoing credit crisis as subprime mortgages have led to a global meltdown in fixed-income markets, tech and financials figure to be leading candidates for changes of benchmark addresses.
Late Wednesday, MSCI Barra (NYSE: MXB) said its latest quarterly review process will result in several changes of names, including deletions and additions. The moves will be made by the end of trading on Feb. 29, according to the company.
Those shifting down in cap-size will include Advanced Micro Devices (NYSE: AMD). It has been reeling in the past few years. After a huge run in 2003-2005, it lost some 33.5% two years ago and more than 63% last year. It's down by double digits again to start 2008.
The chip maker will drop from the MSCI U.S. Large Cap 300 Index to the MSCI U.S. Mid Cap 450 Index "as their rebalancing ranks are below the lower large-cap buffer rank of 450," according to Barra. Advanced Micro Devices will also be added to the MSCI Mid Cap Growth Index.
Also falling from large-cap to mid-cap status is beleaguered Countrywide Financial Corp. (NYSE: CFC). Its returns sank nearly 79% last year as its subprime (nonconforming)-dominated portfolio led to widespread speculation the nation's leading mortgage lender was close to bankruptcy. But a white knight eventually appeared in the form of Bank of America (NYSE: BAC).
With that deal still months from completion, Countrywide's stock returns are down 19% this year.
Countrywide will migrate from the current MSCI U.S. Large Cap 300 Index to the pro forma MSCI U.S. Mid Cap 450 Index. It will also join the MSCI Mid Cap Value Index.
A pair of top performers from last year is set to move up from the MSCI U.S. Mid Cap 450 Index to the pro forma MSCI U.S. Large Cap 300 Index "as their rebalancing ranks are above the mid-cap upper buffer rank of 201," Barra said in a statement.
Those are Express Scripts (NDAQ: ESRX), which gained nearly 104% last year (but is down more than 11% so far in 2008) and Diamond Offshore Drilling (NYSE: DO), a high-flying energy name that returned close to 90% last year but has suffered this year. Both securities will also be added to the MSCI US Large Cap Growth Index.
In the MSCI U.S. Small Cap 1750 Index, five companies are set to move up. Those are:
- CF Industries Holdings (NYSE: CF), up just 5.4% this year. But the industrial materials firm has recently announced an increase in its dividend. And it's seemingly in the eye of rising global demand for fertilizers related to agriculture production. Last year, its stock price including dividends made a whopping 330%.
- Dolby Laboratories (NYSE: DLB), has been hovering around negative territory in 2008. But the audio-video equipment maker's stock is coming off runs of nearly 82% in 2006 and 60%-plus last year. "The company broadened its customer base by supplying its technology to a slew of manufacturers of portable music players, gaming consoles, in-car and home-entertainment systems, and software DVD players. The firm also sees a huge opportunity in the movie theater market," said Irina Logovinsky, a Morningstar analyst, in a recent note. She adds, however, that Dolby remains a business model in transition.
- Flowserve Corp. (NYSE: FLS), up 3.7% this year to keep a three-year hot streak alive. Last year, the machinery maker gained better than 92%.
- Respironics (NDAQ: RESP), a medical equipment maker whose stock has been flat this year. That's a break from 2007's nearly 74% return on its stock for investors. Philips Electronics (NYSE: PHG) has extended until Feb. 22 its $5.2 billion bid for the company.
- Energen Corp. (NYSE: EGN), a fast-growing energy player, has seen its stock fall more than 2% so far in 2008. That comes off 2007 when it jumped 38% and nearly 31% in 2006.
Each will join the pro forma MSCI U.S. Mid Cap 450 Index, "as their rebalancing ranks are above the mid cap upper buffer rank of 551," says Barra.
The initial four companies will also be added to the MSCI U.S. Mid Cap Growth Index. At the same time, Energen Corp. will be added to the MSCI U.S. Mid Cap Growth Index and to the MSCI U.S. Mid Cap Value Index.
Meanwhile, a dozen stocks will be added and five names deleted from the MSCI U.S. Small Cap 1750 Index. Some 11 stocks will be added and three securities cut from the MSCI U.S. Small Cap Value Index. Additionally, four companies will be added and four deleted from the MSCI U.S. Small Cap Growth Index.
The MSCI U.S. Micro Cap Index won't make any changes at this time, Barra added.
Written by Murray Coleman