(Bloomberg) – The annual reshuffle of the Nasdaq 100 stock index could open windows for Lucid Group Inc. and Airbnb Inc.
JPMorgan Chase & Co.’s Min Moon, head of equity index research and the bank’s program trading strategy, said in a report that the two could be added to the closely watched benchmark. Friday night, when the Nasdaq stock exchange announces year member updates to reflect changes in market capitalization. These moves take effect after the close of trading on December 17.
Palo Alto Networks Inc., which moved its listing from the New York Stock Exchange in October in hopes of inclusion in the Nasdaq 100, Fortinet Inc., Zscaler Inc. and Datadog Inc. are also potential candidates for the index, according to the moon.
The Nasdaq 100 is made up of the largest publicly traded non-financial companies. Although there is no minimum market value requirement, its shares must have an average daily trading volume of more than 200,000 shares to be eligible. They must also be listed on a major exchange for three full months after their initial listing. Lucid meets these criteria. Its biggest competitor Rivian Automotive, which went public on November 10, does not.
Shares of Lucid have fallen more than 30% since their recent high on Nov. 16 amid a Securities and Exchange Commission investigation and a broader decline in momentum stocks. But the Nasdaq bases its inclusion decisions on the stock’s October 31 close and shares outstanding as of November 30, so that won’t affect the bottom line.
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Inclusion in these major indexes broadens a company’s investor base because passive index funds and those actively managed that are measured against them buy the stock. This increases liquidity, which can result in a premium to the stock price.
“It’s a good thing for companies, because if they have to raise capital to build a new factory or invest in a new drug,” that issue “will be at a higher valuation” and, therefore, at a cost lower capital, “which just makes it easier to fund projects,” said Nasdaq chief economist Phil Mackintosh. Mackintosh did not comment on which stocks may be added or removed.
Adding Airbnb to an index “could open the company up to other institutional investors who benchmark against any added index,” Morningstar analyst Dan Wasiolek said in an email. Wasiolek said the vacation booking site offers “tremendous opportunity for revenue and profitability growth over the next few years” but is currently overvalued, trading well above its fair estimate. value of $102 per share.
JPMorgan expects CDW Corp., Fox Corp., Cerner Corp., Check Point Software Technologies Ltd., Trip.com Group Ltd. and Incyte Corp. be removed from the index to make room for new entrants.
Despite the benefits of being in the Nasdaq 100, stocks don’t always gain on the news. Only 64% of new additions ended the first day after the announcement, according to the Nasdaq study.
This muted performance can be partly attributed to traders buying ahead of the announcement using forecasts such as JPMorgan’s report, Mackintosh said.
“Traders are already positioning themselves for the news, so when the news comes out, it might not be the big positive shock you think because the market is like, ‘yeah, we knew that stuff,'” he said. he declared.
Although the immediate reaction may be a little lackluster, stocks outperform the market by an average of 1% between five days before the announcement and post-index inclusion, according to Nasdaq’s Nasdaq 100 Additions Study. 2010 to 2020.
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