While the market rally this year has been an investor’s dream after the nightmare of last year, the reality is that a handful of red-hot technology stocks running higher on the back of the Artificial Intelligence explosion has created almost all of the gains in the S&P 500 and the Nasdaq. Because of the huge move higher by just a few stocks, the Nasdaq is doing a very rare one-off rebalancing of the portfolio.
The company announced on July 7 that it will do a special rebalance of the Nasdaq 100 Index, which will take effect before the market opens on July 24. The Nasdaq 100 index comprises 100 of the largest nonfinancial companies that trade on the exchange and is often seen as a proxy for growth stocks. Representatives from Nasdaq said a special rebalance can be used from time to time to “address overconcentration in the index by redistributing the weights.”
It should be noted that while the index is already rebalanced on a quarterly basis, Nasdaq tries to keep the five biggest stocks below a 40% combined weighting in one rebalance per year designated as the annual adjustment, according to the firm’s ongoing stated methodology.
According to the team at Wells Fargo, the last time a special rebalance was done in May of 2011, the stocks that were poised to be upsized the most were up an average of 3.9% during the 10 days prior to the actual event.
Seven top companies in the index will be upsized, and all are Buy rated across Wall Street. It’s important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.
This stock could very well continue to benefit from the increase in information technology and 5G spending. Analog Devices Inc. (NASDAQ: ADI) is a leader in the design, manufacture, and marketing of analog, mixed-signal, and digital signal processing integrated circuits (ICs) for use in industrial, automotive, consumer, and communication markets worldwide. The company offers signal processing products that convert, condition, and translate real-world phenomena, such as temperature, pressure, sound, light, speed, and motion into electrical signals.
Analog Devices has among the best end-market exposure with high communications and aerospace/defense market exposure, in addition to offering investors a powerful 5G content growth story. Plus, acquisitions over the last few years, like Linear Technology and Hittite Microwave, should provide revenue and additional cost synergies.
Analog Devices investors are currently paid a 1.80% yield. The Truist Financial team has a Buy rating on the company with a price target of $215. The Wall Street consensus price target is posted lower at $205.33. Analog Devices shares closed Wednesday at $195.40.
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