An announcement of the addition of
Uber Technologies
to the
S&P 500 index
could come Friday in conjunction with the quarterly index rebalancing.
Uber Technologies, which has a market value of $116 billion, is the largest U.S. company that isn’t in the S&P 500. The ride-sharing company has qualified for inclusion because the sum of its past four quarters of earnings is positive based on generally accepted accounting principles.
Uber shares have advanced about 15% since it reported better-than-expected earnings on Nov. 7. That news prompted speculation that it could soon be added to the S&P 500 index. Uber shares are down 1% in Thursday trading at $55.86 but have more than doubled this year.
S&P is due to announce the S&P 500 rebalancing after the close of trading Friday, with the implementation to occur before the open of trading on Dec. 18.
Stocks often rally on news of being added to the index. But given the recent gain in Uber, an S&P 500 addition seems to be partly discounted in the stock price.
Blackstone
gained 4% on news of its addition to the S&P 500 in early September and
Airbnb,
which was added at the same time, popped 7% during that session.
Lululemon Athletica
gained 10% on news of its addition to the index in October. Stocks often advance on the news of company additions to the S&P 500 as investors buy ahead of index-related purchases on the addition date, hoping to profit from potential gains from the announcement to addition date.
S&P Dow Jones Indices, which oversees the S&P 500, rebalances the S&P 500 every quarter based on changes in the share counts of the individual components.
S&P Dow Jones Indices sometimes adds new stocks to the S&P 500 in conjunction with those quarterly announcements because big investors who benchmark to the index already need to make adjustments to their holdings at those times. New additions have been made at each of the past four quarterly rebalances.
Uber could come into the index with a weighting of about 0.3% given the index’s market cap of around $38 trillion. If Uber or any stock is added, index investors typically have to sell small amounts of the other 499 stocks to make room for the new stock. This assumes that the addition is larger than the company that is deleted—a situation that is typically the case.
In conjunction with the September rebalancing, S&P Dow Jones Indices added Blackstone and Airbnb to the S&P 500 index. At the time, Blackstone was the largest company not in the S&P 500 and Airbnb was one of the bigger companies not in the index.
Other potential candidates for admission to the S&P 500 are
KKR
and
Apollo Global Management,
both alternative asset managers. Industry leader Blackstone was added in September and index watchers think KKR and Apollo, which are among the next largest alternative managers, could be next.
Write to Andrew Bary at andrew.bary@barrons.com
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