Twilio, Bloom Energy and Cheniere Energy are among the top contenders to join the S&P 500 in the upcoming quarterly rebalancing

Twilio could be elevated from the S&P MidCap 400 index when the S&P 500 gets a shakeup on Friday.

A handful of technology, industrial and energy stocks are the top candidates to be added to the S&P 500 in an imminent quarterly rebalancing.

S&P Dow Jones Indices is expected to announced several additions to the benchmark index after Friday's close. If history is any guide, investors should anticipate three swaps this time around, according to Stephens analyst Melissa Roberts. The changes would go into effect before the market opens on Monday, Sept. 21.

The index committee gets to use discretion when selecting new components for the S&P 500 SPX. The S&P 500 is not simply a collection of the 500 largest U.S.-listed companies: Prospective members must meet various requirements around profitability, market capitalization and other elements, but among companies that fulfill those requirements, the committee can choose which make the cut.

Some investors like to speculate about potential additions, presuming that stocks tabbed to join the index will get short-term boosts, as funds tracking the S&P 500 will be forced to take positions.

While quarterly rebalancing changes are always expected to be announced on the first Friday of the last month of the quarter, it's worth noting that the index committee sometimes opts against making any changes. There are also opportunities to add or remove components at unscheduled times, such as when a member company gets acquired.

S&P Dow Jones Indices didn't immediately respond to a MarketWatch request for comment.

Roberts thinks one of the leading candidates for inclusion is Twilio $(TWLO)$, which makes technology that helps companies provide customer service via email, chat and other means. Twilio's stock is currently part of the S&P MidCap 400 index MID, and its addition to the S&P 500 would likely be less disruptive to fund managers because the stock would simply be migrating from one index to another. Twilio is worth about $36 billion.

Other compelling contenders would be outright additions to the S&P universe, meaning that they aren't already in the midcap or small-cap benchmark indexes managed by S&P Dow Jones Indices.

One is Bloom Energy (BE), the largest eligible company, with a recent market cap of about $72 billion. Bloom was overlooked in the past two cycles, but Roberts said conditions might be more favorable this time.

When a large company gets added to the S&P 500, the committee often removes a very small company. That size imbalance creates some disruption for an index that is weighted by market capitalization, because it requires selling off some of each of the other 499 index components to account for the fact that the new company requires a bigger weighting than the old one.

But the third-quarter rebalancing is also lined up with a general review of all the constituents' float weightings, taking into account whether there have been changes to the number of shares available for public-market investors to trade. Because of that, you're "already seeing larger trade sizes on a dollar basis," Roberts said. That affords the opportunity "to make more changes without it being more impactful to the remaining members."

Builders FirstSource (BLDR) is one of the smallest companies in the S&P 500 currently, and if it were to be removed in the upcoming rebalancing, that would create a "reason to add new industrial name" like Bloom, Roberts noted.

She also flagged Cheniere Energy (LNG), the second-largest company eligible for inclusion, with a $60 billion market cap. The last time the index committee added a completely new energy name was four years ago, Roberts noted, although it has done a migration from one of the smaller indexes more recently than that.

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While Roberts thinks Twilio is the most likely technology candidate for inclusion, she pointed out that Astera Labs (ALAB) and Credo Technology Group (CRDO), two plays on artificial-intelligence connectivity, are also contenders.

Meanwhile, along with Builders FirstSource, Trade Desk (TTD) and Norwegian Cruise Line Holdings $(NCLH)$ face the "biggest demotion risk" due to their small sizes, she said.

-Emily Bary