Enphase Energy (NASDAQ: ENPH) will start the new year with a bang, as the company has been appointed to S&P 500 Index. This will take place before the market opens next Thursday, January 7th.
The S&P 500 operator, S&P Dow Jones Indices, announced the news on Wednesday. With its ascension, Enphase replaces the manufacturer of luxury goods Tiffany & Co. After a rather tortuous takeover saga, LVMH adopts Hennessy Louis Vuitton Tiffany, so the latter ceases to be an independent company.
Enphase is not exactly new to the S&P index table. It currently belongs to the S&P MidCap 400 index. The position of the index will be fulfilled Capri Holdings, a fashion industry founded by renowned American designer Michael Kors (his business, so it happens, was once an S&P 500 index component).
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On Thursday, Enphase shares closed nearly 1.5% higher, outpacing the gains of the index it will soon enter. This is often what happens when companies ‘graduate’ the S&P 500, as investors look forward to the greater visibility of a stock.
They also hope the stocks will benefit from the uptake in some of the many index funds now popular in the market; as a benchmark stock index, the S&P 500 is fertile hunting ground for the managers of such instruments.
However, existing and potential Enphase shareholders should be aware that research has generally shown that this initial pop is not expensive. While this is certainly good news for the company, its fundamental performance will have a much greater impact on the attractiveness of the stock than including the S&P 500 Index components at the rare club.