When I first thought of the idea for this article, Sirius XM Holdings (NASDAQ:SIRI) was still a part of the Nasdaq 100, a collection of 100 of the largest non-financial stocks listed on Nasdaq. However, there was speculation certain companies were Nasdaq 100 stock candidates to replace the satellite radio business.
Sure enough, on June 13, Nasdaq announced that SIRI was out and Arm Holdings (NASDAQ:ARM) was in. Sirius XM was ousted from the index because its market capitalization had fallen below 0.1% of the total market cap of the 100 companies.
With the addition-subraction move, the index’s total market cap jumped by approximately $150 billion. It now sits at $26.03 trillion. This suggests that several other companies could be dropped from the index in the weeks and months ahead. Possible deletions include Walgreens Boots Alliance (NASDAQ:WBA), which is the smallest weighting in the index at 0.09%.
With up to four stocks on the chopping block, here are my three Nasdaq 100 stock candidates.
Super Micro Computer (SMCI)
Super Micro Computer (NASDAQ:SMCI) is the largest of my three recommendations by market cap at $49.24 billion. Not only would it be a good stock candidate for the Nasdaq 100, it also could use a stock split with its shares up 194% in 2024, and trading above $840.
As Barron’s pointed out in its coverage of the NASDAQ 100 in mid-June, Super Micro’s huge gains in 2024 was a big reason for it being added to the S&P 500, so it’s very possible the server maker could be next after ARM.
Working against Super Micro is the fact there are already 39 technology companies in the NASDAQ 100. If added, it would have a larger market cap than just 12 of them.
Working in its favor is the fact it’s fairly popular with analysts. Of the 19 that cover its stock, 14 rate it a Buy, with a target price of $1,029.76, 23% higher than where it’s currently trading.
Also working in its favor: There are no computer hardware companies in the index. Of the five large-cap (over $10 billion) technology stocks trading on Nasdaq in the computer hardware industry, SMCI has the largest market cap.
Tractor Supply (TSCO)
Tractor Supply (NASDAQ:TSCO) is a specialty retailer in Tennessee. I’ve liked its business for a long time. As far back as September 2014, I discussed with InvestorPlace readers why the retailer, whose primary customer was, and still is, the gentleman farmer, was a great stock to buy.
At the time, it operated 1,300 stores in 48 states. Today, it operates 2,233 Tractor Supply stores in 49 states, plus 202 Petsense by Tractor Supply stores in 23 states. In 2014, it had revenue of $5.71 billion, and $589.5 million operating income. In 2023, revenues and operating income were $14.56 billion and $1.48 billion, respectively, which works out to compound annual growth of 10.96% and 10.77%.
As a result, its shares have a compound annual growth rate of 13.8% over the past 9.5 years. Including dividends, it has a 10-year annualized total return of 16.4%.
Not too shabby.
Analysts are mixed about TSCO stock. Of the 33 that cover Tractor Supply, 16 rate at a buy, less than half the analyst coverage. Further, the target price of $278 is just 4% higher than where it’s currently trading.
It’s definitely not cheap right now with a price-to-sales ratio of 1.97x, its highest level since 2021. However, over the long term it’s proven to be a winner.
Ferrovial (FER)
The smallest of three NASDAQ stocks by market cap is Ferrovial (NASDAQ:FER), the European-based infrastructure operator. The company operates toll roads, airports, and builds infrastructure worldwide.
Founded in 1952, the company began work on railway projects in Spain. In 1958, Renfe, the Spanish railway company, awarded Ferrovial the contract to build an 18-mile railway link between Las Rosas and Chamartín, in Madrid.
An example of its work is the 407 ETR toll highway in the Greater Toronto Area in Canada. It built the 67-mile toll road and owns 43.23% of the 407 ETR Concession Company Limited, which operates it.
In June 2022, the company’s Airports business acquired the rights to design, build, and operate the new Terminal One at New York’s JFK airport. It has a lease through 2060.
Of the 10 companies in the index from the Industrials sector, none represents the infrastructure industry. There are 23 Industrials companies trading on Nasdaq with a market cap over $10 billion. It has the 11th largest at $27.34 billion.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
