You just received the awesome news about a new stock added to the S&P 500. You check your portfolio and by gosh, you own it, exclaims Bob Lang of ExplosiveOptions.net.
You’re overwhelmed with joy knowing that big funds and indices are going to add the name to their portfolios. Strong demand will no doubt propel the stock higher. That's GREAT news for you. This is exactly what is happening to anyone who holds the hot semiconductor name Super Micro Computer (SMCI). After the close on March first, they announced the stock would be added to the S&P 500 index in a week.
Here’s what to expect.
A New Stock Added to the S&P 500—What Happens Next
Investors of big funds will have to remove the stock being replaced and match the weighting of the index. If a large cap name like Uber is added (in December 2023 it was added in place of Sealed Air), you can expect two big pops: upon announcement and then upon listing. What do you do next? Don’t sell! A new stock added to the S&P 500 means the company has strong fundamentals, which are already known by the market.
The frenzy created over the announcement is likely to die down quickly. Anyone who jumps at the chance to sell will probably be kicking themselves down the road. This name was added for a reason. It will go up—and probably a lot higher than it will in the immediate term. So if you hold SMCI, here’s what I have to say:
SMCI already has great momentum, and it has been extraordinarily strong over the past few months The recent pullback was a great opportunity to get long the stock. If you’re holding the name and believe that its momentum will continue, there is only one thing you need to do: hold the stock. And add more shares if you can. Becoming a part of the S&P 500 is an indication that this name is a good one.
Learn more about Bob Lang at ExplosiveOptions.net.
