Each quarter, the FTSE 100 and FTSE 250 have a reshuffle. Based on the rise and fall of the market cap of a stock, it could get promoted or relegated from either index. The largest companies sit in the FTSE 100. Here’s one firm that used to have a seat at the top table that I think could return shortly.
In the hot seat
I’m talking about Harbour Energy (LSE:HBR). Back in late 2022, it was demoted out of the main index down to the FTSE 250, which is where it currently sits.
The business has been performing well recently, with the share price up 11% over the past year. Back in late December, the stock jumped on news that it had agreed to buy the upstream assets of German oil and gas producer Wintershall Dea. This gives Harbour Energy a much broader asset base around the world and will help for diversification purposes.
Habour Energy also has momentum when I consider the rising oil price. Brent crude recently hit levels not seen since last October and is above $81 per barrel right now. Should this continue to move higher into the summer, it should support higher earnings from the business.
Why promotion could be close
From purely a numbers stand point, the stock could be due to rise up to the FTSE 100 soon. It currently has a market cap of £2.14bn. In comparison, St. James’s Place (which is in the FTSE 100) has a market cap of £2.33bn. Obviously we’ll have to wait for the final figures come the next quarterly rebalancing, but it’s clear that Harbour Energy isn’t far away.
Even if it doesn’t quite make it this time, the trajectory of the share price should mean that it will get to the top table at some point this year. Granted, past performance is no guarantee of future returns. But if the share price keeps rising, the market cap should also increase. As a result, this should help it to be in contention versus FTSE 100 stocks that are falling in value.
Of course, the risk is that the Harbour Energy share price starts to drop. This could be due to lower production figures, or a messy and costly integration of the new Wintershall Dea assets.
How it could help the share price
One of the benefits that a promotion would bring is the buying demand from index funds. A FTSE 100 index fund has to purchase any new stock, and sell any that get demoted. This naturally acts to help the share price, at least in the short term.
Even though FTSE 250 index funds would sell Harbour Energy shares in this case, the index tracker market for the FTSE 100 is vastly larger than the FTSE 250.
Further, getting back to the FTSE 100 would give Harbour Energy more publicity and potentially open it up to new investors. For example, I know some of my friends that only want to invest in the main index.
Of course, I shouldn’t simply buy the stock because it might get promoted. Rather, this is a side benefit. The main reason I’d look to buy would be due to the fundamentals of the business. As a result, it’s a stock that I’m thinking about buying shortly.
