These Stocks Should Be in the S&P 500

Many investors believe that the S&P 500 (SNPINDEX: ^GSPC  ) simply owns the 500 largest stocks in the U.S. market. But because the S&P 500 tries to choose a representative cross-section of stocks to represent the domestic economy, many smaller stocks make it into the S&P 500 even as larger companies in other industries fall short.

Still, looking at the list of large companies that the S&P 500 has thus far neglected often helps identify the next stocks to get added to the index. With that in mind, let's look at the 10 biggest stocks in the S&P Midcap 400 index, the mid-cap benchmark from which Standard & Poor's often draws to make its next large-cap selections.

Stock

Market Cap

Alliance Data Systems

$10.9 billion

Green Mountain Coffee

$10.3 billion

Affiliated Managers Group

$10 billion

LKQ

$9.7 billion

Mohawk Industries

$9.4 billion

Henry Schein

$9.3 billion

Tractor Supply (NASDAQ: TSCO  )

$9.2 billion

Polaris Industries (NYSE: PII  )

$9 billion

Oceaneering International (NYSE: OII  )

$8.8 billion

J.B. Hunt (NASDAQ: JBHT  )

$8.7 billion

Source: S&P Capital IQ.

We already took a look at Green Mountain and Affiliated Managers a couple of months ago, along with two other stocks that got added to the S&P 500 in the interim. But some of the most interesting prospects are a bit further down the list.

Tractor Supply has aligned its fortune with the domestic agricultural industry, with its network of more than 1,200 retail stores serving small farms and individuals across the nation. A combination of factors has put Tractor Supply in the right place at the right time, as high crop prices have not only helped strengthen existing farmers' financial prospects but also encourage new entrants in recreational farming. With record operating margins stemming from successful private-label brands as well as expansion plans for new stores, Tractor Supply is worth a closer look.

For Polaris, big gains have come from tapping new markets related to its traditional core areas of strength. Polaris got its start in snowmobiles, but realizing the seasonal nature of the business, it has also diversified into all-terrain vehicles and motorcycles. By reinventing itself as an all-season seller of vehicles for recreational use, Polaris has been able to escape a tiny niche and build itself up as a major player in non-traditional vehicle sales.

Oceaneering International has tapped into the potential of undersea drilling, with a deepwater-services focus that has become increasingly important. Around the world, the number of ultra-deepwater projects has risen dramatically in recent years, giving companies that offer ways to help facilitate those projects a huge opportunity to profit. With remotely operated submersible vehicles to support inspection and installation of undersea hardware, pipelines, and other facilities, Oceaneering can expect greater demand for years to come.

Finally, J.B. Hunt is a major trucking company. Trucking has fallen somewhat out of favor lately, with high fuel prices promoting alternatives such as rail transport and making conditions more difficult for J.B. Hunt and its peers. Yet with more shipping activity gravitating to lower-cost ground transport rather than faster and more expensive express services by air, J.B. Hunt could get a big boost if it manages to report strong earnings tomorrow.

None of these stocks is certain ever to become an S&P 500 member. But their success gives them a fighting chance to join the large-cap ranks at some point in the future.

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