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FTSE 100 reshuffle: here’s my top stock pick for June

Tezcan Gecgil, PhD
FTSE 100 (London Stock Exchange Share Index) on Gold Coin Stacks Isolated on White

The quarterly reshuffle of the FTSE 100 is upon us. As I write, we don’t yet know for certain which companies will be entering the index. Today, I’m taking a look at Avast (LSE: AVST), a stock that may be promoted from the FTSE 250 to the main index.

But let’s first see which ones may be relegated to the FTSE 250.

FTSE 100 shares that may leave the index

The last review of the blue-chip index happened in March. FTSE Russell, the global index provider, highlights that: “The rules-driven, impartial quarterly reviews ensure the indexes continue to portray an accurate reflection of the market they represent and form an essential component to the management of the indexes”.

At the time, Fresnillo, Intermediate Capital Group and Pennon Group joined the FTSE 100. There were also 11 changes to the FTSE 250.

As a result of the recent market crash, this quarter’s changes are likely to grab more headlines than previous ones. Based on closing share prices as of 29 May, analysts are expecting four companies to leave the index. They include Carnival, Centrica, EasyJet, and Meggitt. Year-to-date, they’re down over 70%, 59%, 52% and 55% respectively.

Given the lockdown in so many countries, Carnival and EasyJet have had absolutely no revenue for months. In March, who could have truly foreseen that almost all cruise and commercial travel would come to a halt?

Meggitt manufactures crucial components for fighter jets. But aviation has been frozen, making it a painful quarter for the company. Centrica, the fourth candidate likely to leave the index, is possibly better known as the parent group of British Gas. Management has been blaming UK government’s cap on prices for the group’s loss last year. 

During these regular reviews, FTSE Russell always has a reserve list for the FTSE 100 Index. In March, the names on that list were, Avast, Bellway, Derwent London, Direct Line Insurance Group, GVC Holdings, and Homeserve.

I expect Avast to be among those to make it to the prestigious index. The other three are likely to be Homeserve, GVC and ConvaTec.

Avast

So now to Avast. With a market cap of £5.14b, the Czech Republic-based firm is one of the world’s largest cybersecurity companies. Globally it has over 435 million users who rely on its malware, anti-virus, firewall, and anti-hacking tool kits.

In mid-April, the group released a Q1 trading and Covid-19 update, highlighting how the company has benefited from an increase in working from home. Management also kept FY2020 revenue guidance in place. Investors were pleased.

Initially the group had a rocky start to 2020. On 24 January, the shares hit an all-time high of 552p. Then a data privacy scandal pushed the share price down to 425p. And as markets went into freefall in mid-March, AVST stock was close to 300p. As I write it’s 503p.

I expect it to continue to be a top growth share and the price to see new highs in the coming months.

Foolish takeaway

The upcoming  reshuffle is important as exchange-traded funds (ETFs) and tracker funds have to duplicate the index. Therefore there will be selling and buying of shares following the announcement by FTSE Russell.

In addition to the newcomers to the main index, you may want to pay attention to this quarter’s reserve list too. After all, a few of them may make it to the FTSE 100 in September.

The post FTSE 100 reshuffle: here’s my top stock pick for June appeared first on The Motley Fool UK.

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tezcang has no position in any of the shares mentioned. The Motley Fool UK has recommended Carnival, Fresnillo, Homeserve, Meggitt, and Pennon Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Motley Fool UK 2020