The broader benchmark S&P 500 will soon undergo its quarterly rebalancing on Dec. 23. This involves dropping certain stocks from the index and adding others to replace them. Changes help keep any particular index more reflective of its underlying market cap. The S&P 500 comprises large-cap companies with market caps over $10 billion that fulfill a certain set of criteria. Joining an index can be a catalyst because funds and investors that track the index essentially have to buy the stock, leading to inflows.
Let's meet two of the newest additions to the S&P 500, which have surged since their initial public offerings over a decade ago, and also see what Wall Street thinks of each stock heading into 2025.
Apollo Global Management (NYSE: APO) is one of the largest private equity (PE) companies in the world with more than $650 billion in assets under management (AUM) at the end of 2023. The company's flagship PE fund seeks to invest in a range of opportunities across sectors and geographies that generate attractive risk-adjusted returns. Since its inception, Apollo's PE fund has generated 24% net internal rates of return.
The company's largest business, however, is generating returns through credit underwriting and origination, also known as yield. Apollo allocates over $480 billion of AUM to this strategy, which you may have heard referenced as private credit. Yield businesses include corporate fixed income and credit, structured credit, real estate debt, and direct originations. In the third quarter, total AUM associated with private credit reached nearly $598 billion, up over $100 billion year over year.
Private credit has become a larger business for PE shops like Apollo as mainstream banks have faced intense regulation calling for higher capital and liquidity ratios. This, according to many bankers like JPMorgan Chase CEO Jamie Dimon, has shifted some of the traditional bank lending to companies like Apollo. Regulation has also made it less profitable for banks to do traditional loans like mortgages. Over the next five years, Apollo's goal is to roughly double its private credit business to $1.2 trillion AUM.
The stock has performed well, especially as banks have faced tougher regulatory capital requirements under President Joe Biden's administration. However, President-elect Donald Trump's administration is expected to go much easier on the banks, so this may change. Since going public in March 2011, Apollo's stock is up nearly 888%. The stock has also surged 91% this year, which is incredible for a large-cap, non-artificial intelligence financial stock.
However, due to this performance, Wall Street analysts think the stock price may have run too far near term. Eighteen analysts have issued ratings over the past three months, according to TipRanks. Thirteen have buy ratings and five are neutral, with the average price target implying about 2.5% downside from current levels.
The cloud human resources company Workday (NASDAQ: WDAY) went public in October of 2012 and has also performed well with its stock up nearly 482% since. Workday's stock is only up about 5.5% this year, which pales in comparison to the S&P 500's 28% gain.
Workday's platform helps companies manage their people and money with solutions such as accounting for CFOs, management of vendors and contracts, onboarding and paying employees, modeling sales and future projections, and providing strong analytics. The company has also tried to tap into the AI trade by offering an AI marketplace and plans to roll out more generative AI capabilities in 2025.
Workday has struggled due to higher costs, increased competition, and a challenging labor market, which has led to slowing revenue growth. In the company's third fiscal quarter of 2025, revenue grew about 3.6% from the prior quarter. However, investors may have been looking for more, especially with the stock still trading at close to 40 times next year's earnings.
Wall Street analysts still like the stock. Of the 29 that have issued ratings over the past three months, 21 have a buy rating, seven say hold, and one says sell, according to TipRanks. The average price target only implies about a 3% upside from current levels. The company certainly has potential but it may take time to grow into its current valuation, given the macro backdrop.
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Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Workday. The Motley Fool has a disclosure policy.