Bank of America thinks these stocks are prime candidates to join the S&P 500, and could outperform

Published Fri, Feb 23 20249:31 AM ESTUpdated Fri, Feb 23 202412:21 PM EST

Joining the benchmark S & P 500 is a catalyst for stock growth, according to Bank of America, and the firm is eyeing a collection of companies that it thinks are solid contenders to join the index. New additions to the S & P 500 since 1990 have returned 4.3%, or 8.7% annualized, on average, in the six months after they've joined the broad market index, according to Bank of America's investment and exchange-traded funds strategist Jared Woodard. Stocks cycle on and off the major averages, with the most recent example being Walgreens Boots Alliance 's deletion from the Dow Jones Industrial Average and its replacement by Amazon on Monday. Woodard noted that changes to the S & P 500 typically occur following a period of strong growth. The S & P 500 has gained more than 24% in the past year and has climbed more than 4% from the start of 2024. There are two main criteria for adding a stock to the S & P 500, the strategist said. First, a company's prior four quarters of earnings on generally accepted accounting principles, or GAAP, basis must be positive. Second, the stock's market capitalization must be in the 85th percentile of the S & P 1500. Here's a look at some of the stocks Bank of America thinks are in contention for entry to the S & P 500. Palantir Technologies is up roughly 177 % in the past year, and has gained more than 37% in 2024. The company has a market cap of $37.48 billion. Four of the 17 analysts covering the stock say it's a buy or strong buy, and average price targets suggest downside of 20%, according to FactSet. Earlier this month, Palantir posted fourth-quarter revenue that beat analysts' expectations, driven by demand for its artificial intelligence capabilities. However, the company reported a lower-than-expected forecast for first-quarter revenue. PLTR YTD mountain Palantir stock. Alternative asset manager KKR has gained 71% over the past year, and it has a market cap of $82.89 billion. Bank of America analyst Craig Siegenthaler thinks the stock could be added to the S & P 500 as soon as mid-March following the index's planned rebalance. About 94% of analysts polled by FactSet rate KKR either buy or strong buy, and the average price target suggests nearly 11% upside. KKR YTD mountain KKR stock.