1 ex-FTSE 100 stock that I think will get promoted soon

Jon Smith flags up an energy stock that used to be in the FTSE 100 and currently has strong momentum behind it to get back to the top table.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

White female supervisor working at an oil rig

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

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.

Passive income stocks: our picks

Do you like the idea of dividend income?

The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?

If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…

Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.

What’s more, today we’re giving away one of these stock picks, absolutely free!

Get your free passive income stock pick

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.

Created with Highcharts 11.4.3Harbour Energy Plc PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

Our analysis has uncovered an incredible value play!

This seems ridiculous, but we almost never see shares looking this cheap. Yet this Share Advisor pick has a price/book ratio of 0.31. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 31p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

What’s more, it currently boasts a stellar dividend yield of around 10%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?

See the full investment case

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Jon Smith has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

More on Investing Articles

Warren Buffett at a Berkshire Hathaway AGM
US Stock

3 of the best pieces of advice from Warren Buffett’s final annual meeting

Jon Smith reviews some of the highlights from Warren Buffett's final conference and details investing lessons that everyone can learn…

Read more »

Content white businesswoman being congratulated by colleagues at her retirement party
Investing Articles

The Card Factory share price sinks after reporting its 2025 results

Our writer considers why the Card Factory share price responded negatively to this morning’s results announcement and latest trading update.

Read more »

Number three written on white chat bubble on blue background
Investing Articles

Just released: the 3 best growth-focused stocks to consider buying in May [PREMIUM PICKS]

Our goal here is to highlight some of our past recommendations that we think are of particular interest today, due…

Read more »

Middle-aged white man wearing glasses, staring into space over the top of his laptop in a coffee shop
Investing Articles

£10k invested in Vodafone shares a decade ago is now worth…

Despite paying big dividends, Vodafone shares have produced negative overall returns over the last decade meaning investors have lost money.

Read more »

Mature black woman at home texting on her cell phone while sitting on the couch
Investing Articles

Hargreaves Lansdown investors are piling into BP shares for a 7% yield. Is that a smart move?

BP shares have tanked and the dividend yield's risen. Could there be a great opportunity here for long-term investors?

Read more »

Close-up image depicting a woman in her 70s taking British bank notes from her colourful leather wallet.
Investing Articles

Here’s the dividend forecast for Barclays shares through to 2027!

Should dividend investors consider buying Barclays shares to hold for the next few years? Royston Wild looks at the FTSE…

Read more »

Side of boat fuelled by gas to liquids, advertising Shell GTL Fuel
Investing Articles

4 reasons why I think the Shell share price fell on rumours the group wants to buy BP

The Shell share price responded negatively after newspaper stories emerged claiming that the energy giant’s considering buying its smaller rival.

Read more »

Investing Articles

Down 20% over the year, is GSK’s share price a stunning bargain after its Q1 results?

GSK’s share price has fallen significantly in the past 12 months, but this could mean it looks a major bargain…

Read more »