Tesla’s stock price, which rose more than 500% from last year, could rise further if included in the S&P 500, just as Yahoo stock rose 64% in 5 trading sessions in 1999 following the announcement of its inclusion in the index.
Tesla’s share has been on fire since October 2019. It rose 29% in July and is now up 233% for the year. Other EV stocks have rallied as well, and NIO hailed as Tesla in China is up 287% so far in 2020.
After the recent surge, Tesla’s market capitalization overtook Toyota Motors, which is the world’s largest automaker. While Tesla’s valuation makes some analysts worried and Goldman Sachs downgraded the stock last month, the stock continued to rise.
Tesla would be eligible to be included in the S&P 500 if it posts a profit in the second quarter. It has posted net profit for three consecutive quarters and a second quarter profit would make it eligible for inclusion in the prestigious index.
Tesla CEO Elon Musk dropped hints about the company’s second quarter performance in a leaked internal email in which he said “the breakeven point looks very tight.” That said, Musk didn’t say whether he was looking to break even on net profit or some other metric.
If Tesla is included in the S&P 500, ETFs and funds that track the index would necessarily buy the stock. Assets under management of funds that track the S&P 500 are over $ 4.4 billion according to S&P Dow Jones.
“Even if you don’t like Tesla and think he is overvalued, the fact that he gets into the index would mean billions of dollars would have some sort of position,” said Jim Bianco, head of Bianco. Research in Chicago. He added: “As part of their benchmark, the portfolio managers couldn’t ignore it. “
In 1999, Yahoo, which has a market capitalization of $ 56 billion, rose 64% in the five days between announcing its inclusion in the index and its effective inclusion on December 7.
“The lesson learned from Yahoo is that when you have an upcoming issue that can potentially get into the index, you should already own a little bit of it,” said Howard Silverblatt, senior index analyst at S&P Dow Jones. He added, “If you were to get into this stock, you were paying a hell of a premium over owning it a week earlier.
Meanwhile, Tesla is the shortest stock on the NYSE, and short sellers have bet $ 19 billion the stock will drop.
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