Next to Win a Slot in S&P 500 Index: Maybe Match, Keurig, Epam

(Bloomberg) -- One of the most famous groups in the U.S. stock market, the Standard & Poor’s 500 Index, may soon have some openings and online dating site Match Group Inc., well, may be a good match.

So might Keurig Dr Pepper Inc., Epam Systems Inc. and CoStar Group Inc., all of which meet the rules for being added to the benchmark. 

Such changeups could come as soon as Friday evening, when S&P Dow Jones Indices is set to announce its quarterly shift to the weightings of major indexes to take account of market moves. It often changes the memberships at the same time, adding new companies and bumping those that no longer fit.

Stocks frequently jump after being added to the S&P 500 because they become a must-buy for index funds that track it, which had more than $5 trillion by the end of 2020. 

Such decisions are made by a secretive group of staff that meets monthly to decide on changes to the S&P 500, S&P MidCap 400 and the S&P SmallCap 600, and it’s not easy to guess when or how many new companies will be added. But there are currently more than 60 in the S&P 500 whose stock-market values have slipped below the $13.1 billion threshold for new entrants, making it possible that some of them could be removed.

Here are potential candidates for the S&P 500, based on the criteria:

• Match Group: The online-dating company, with a market cap of more than $40 billion, is one of the biggest eligible for the S&P 500 that isn’t already there. IAC/InterActiveCorp cited the potential inclusion in indexes as one benefit of its decision to spin off the company last year.
• OTHER OUTSIDERS: Keurig Dr Pepper,  Epam Systems and CoStar Group are all well above the market-cap threshold but aren’t in the MidCap 400 or SmallCap 600, a frequent stepping stone for companies into the S&P 500. Keurig Dr Pepper, the largest eligible for inclusion into the index with a market cap around $50 billion, could be held back by the influence of its largest shareholder, JAB Holdings, whose stake has kept the beverage maker’s free-share float just above S&P 500’s 50% threshold.
• RULED OUT: Both Square Inc. and Zoom Video Communications Inc. have large market capitalizations and would seem to fit the bill. But S&P Dow Jones excludes new entrants into the S&P 500 that have dual-stock classes like those companies do. Alphabet Inc. has such a structure, but it was grandfathered in.
• INSIDERS: Many of the additions to the S&P 500 come from companies that have outgrown the MidCap 400, with Bio-Techne Corp. the most recent example. Companies in the index don’t need to meet the profitability, liquidity and share-float standards required of outsiders. There are currently 20 such companies big enough for the S&P 500. Among them is day-trader darling GameStop Corp., which was previously bumped from the index and would likely be a long-shot due to its volatility and financial struggles. Potential candidates to move up, based on their lower volatility and profitability, which is more reflective of those in the S&P 500, include Brown & Brown Inc., Graco Inc., Camden Property Trust, Nordson Corp. and FactSet Research Systems Inc.

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