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Buying Tesla shares? Here’s what an analyst had to say before adding the S&P 500

Tesla Inc. To the major US stocks championships on Monday, a relatively routine move that turned out to be unprecedented due to the sheer size of the market assessment for the electric car maker Silicon Valley.

Tesla TSLA,
+ 2.90%
It is by far the largest company to add to the S&P 500 SPX,
Come on Monday, when you start trading on the index, it is likely the sixth largest company on the index by market cap, currently well above $ 600 billion.

Bernstein analyst Tony Sakonagi said in a recent note that there was a “strong precedence” for gains in stocks before their S&P listing and after the announcement, but very limited precedent for outperformance in the near term after the inclusion.

Since the Tesla sales report for the fourth quarter in early January is not expected to “be an explosion, we recommend investors to take short-term profits until December 21,” he said.

Sakunaghi said the 50 largest additions to the S & P500 since 2010 “outperformed” on average before their advertised listing in S&P, outperforming an additional 3% between ad and listing, and “performed somewhat poorly” in the days and months that Inclusion followed. .

On average, he said, new arrivals decreased 1.7% in the six months following the listing.

So far, Tesla’s estimate has been even more exciting, including more than 230% over the past six months, when hopes were high that the company would join the index after meeting benchmarks that included long-term profitability.

So far this year, Tesla shares have gained around 700%, compared to a gain of around 14% for the S&P.

S&P Dow Jones announced the listing of Tesla on November 16, after neglecting the company in a previous rebalancing. Emphasizing the complexity of adding the company, he consulted with investors on how to do so, and finally made the decision To add Tesla in one go.

Since then, Tesla has seen its shares rise by more than 60% and add nearly $ 200 billion of market value to $ 625 billion today, about 10 times more than General Motors for General Motors.
And 18 times Ford Motor Company. F,

See also: Tesla debt is close to S&P investment grade rating

Joining S&P puts Tesla in countless index tracking funds, which extends to the many managed funds that have had to add Tesla to their holdings to balance them out.

Most of the repositioning operations will likely take place after Monday, Sakonagi said.

In addition to the impending addition of the S&P 500, Tesla received good news on its corporate debt front late Thursday.

S&P Global Ratings upgraded its rating on Tesla’s bonds to BB, leaving the company with a measure of creditworthiness. Only two degrees away from the desired investment grade rating.

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