Tesla to Join The S&P 500 Club; TSLA Stock Rallies
It was a matter of time, S&P Dow Jones Indices finally announced that American electric vehicle and clean energy company Tesla Inc would be added to the S&P 500 index before the opening bell on Monday, December 21.
Then, Tesla's shares exploded and traded around 13 percent positive as a reaction from the news. It opens a tremendous amount of business opportunities for investors as it is a fundamental bullish event.
According to a press release published by the S&P Dow Jones Indices, Tesla Inc will be added to the S&P 500 on December 21 "to coincide with the December quarterly rebalance."
At the moment of the entry, Tesla will be one of the top 10 most valuable companies of the index based on today's prices. In that line, the index will take extra measures to allow a smooth addition of the corporation in terms of weight and size.
The index said in an statement:
Due to the large size of the addition, S&P Dow Jones Indices is seeking feedback through a consultation to the investment community to determine if Tesla should be added all at once on the rebalance effective date or in two separate tranches ending on the rebalance effective date, Tesla will replace a S&P 500 company to be named in a separate press release closer to the rebalance effective date.
The addition on December 21 will coincide with the expiration of stock options, stock futures, stock index futures, and stock-index options.
Dan Ives, analyst at research firm Wedbush Securities, said to CNBC:
This is another major feather in the cap for Tesla bulls joining the S&P 500,It speaks to the sustained profit trajectory that Tesla is now finally getting into this elusive club after much noise on the Street.
Tesla to Stop Selling The $35K Model 3 in 2021
In other news, Tesla has decided to stop selling its cheapest car in the market, the 38 thousand dollars Model 3 with the new 2021 model year refresh.
In that line, Musk fails to comply with his promise to deliver an electric car for the masses with a starting price of 35 thousand dollars.
The company is not offering the model on its website, but customers can still buy it in an off the menu option.
The Expert Investor Takeaway
When I said that it was a matter of time, I recalled S&P's decision to do not include Tesla in the index back in September. Everybody was expecting the inclusion, but there were other companies on the waiting list.
Investors got disappointed by the decision, and they closed their long positions, generating a 20 percent drop on September 7 to 329.68 dollars per unit. However, the stock recovered to trade above the 400.00 dollars per unit level, and it stabilized there.
At that moment, the opportunity arose. A super volatile stock gained some stability above the 400.00 level and opened the door for more conservative investors.
People got lost in the headline and the not-inclusion decision, but they missed the point that it was a matter of time as Tesla was finally reporting profits steadily. However, the smart money consolidated their positions at that moment.
Today, that hypothesis is paid back, and according to experts, the Tesla stock is entering into a new dimension.
One of the most critical topics of being included in the S&P 500 index is not the headlines, but the new market the company is facing. Many mutual funds and asset management companies are focused on companies in the S&P 500, so they only can buy shares from the index. According to experts, it will provide a massive amount of new investors for Tesla, let's say for a business of around 120 million shares in the next month.
As I wrote on September 7 here at Expert Investor, "companies included in the S&P 500 enjoy a different consideration from investors as several mutual funds work with indexes and are S&P 500 linked. So, new additions mean a new market for shares and, therefore, increasing demand for the given share. Usually, companies added to the index experience increases in their price due to rebalancing."
TSLA Stock Analysis
Shares of Tesla are trading positive for the first time since November 11 as investors have reacted positively to the S&P inclusion announcement.
On Tuesday, TSLA opened on highs since October 14 at 462.00 dollars per unit. The Tesla stock is now trading at 444.44 dollars per unit, which means Tesla is rallying 9 percent on the day.
According to TheStreet Quant Ratings, Tesla Inc is a stock to "hold" with no target price. The firm highlights the gross profit margin as it is "currently lower than what is desirable."
Regardless of TSLA's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 3.77% trails the sub sector average.
On the other side, CFRA sees Tesla as a "five star strong buy" stock with a 12-month target price of 550 dollars per unit as "TSLA's risk/reward is highly favorable at current levels, with both near- and long-term catalysts."
CFRA acknowledges that "TSLA will soon be added to the S&P 500 Index, which could prompt a new wave of investor buying. Additionally, at TSLA's recent Battery Day it outlined a plan to reduce battery costs on a $/kWh basis by 56% and boost vehicle range by 54%, which we think will help widen the competitive gap between Tesla vehicles and other EVs.
Mauricio is a newer member of the team and a very welcome addition. He is a financial journalist and trader with over ten years of experience in stocks, Forex, commodities, and cryptocurrencies. This experience means he has an excellent understanding of the markets and current events.