Is Tesla a Buy Before S&P 500 Inclusion

After getting a boot a few months ago, Tesla is ready to grace the S&P 500 Index on December 21.

Tesla shares have risen 24 percent since the announcement. They hit a new high on Thursday with more people showing interest in the company. 

With a market share of over $470 billion, Tesla is among the largest companies. This is why the S&P is considering breaking the process into separate tranches to spread out the impact of such a huge addition.

How High Can Tesla Go?

According to CNN, the median target is $424.50, with a low estimate of $40 and a high estimate of $800. The median value represents a fall of 14.96 percent from the last close of $499.20.

It can be hard to predict how high Tesla will go, however, precedent shows that there’s still potential. In 1999, Yahoo surged around 64 percent in only five trading days after the announcement that it would get added to the index.

This addition will force index funds to adjust their holdings. They’ll have “to sell about $51 billion worth of shares of companies already in the S&P 500 and use that money to buy shares of Tesla, so that their portfolios correctly reflect the index,” according to S&P Dow Jones Indices. 

Is Tesla Still a Buy at $500?

Tesla hit $507 this Thursday before closing at $499. The upside potential in the company, however, remains strong according to Morgan Stanley analyst Adam Jones who upgraded the company to “overweight” from “equal weight” with a target price of $540.

In the case of a bull market, Morgan Stanley assigned an impressive target of $1,068, an upside of more than 100 percent from yesterday’s close. The increase comes due to the inclusion of software.

“To only value Tesla on car sales alone ignores the multiple businesses embedded within the company, and ignores the long term value creation arising from monetizing Tesla’s core strengths, driven by best in class software and ancillary services,” said the note.

Note: This is not investment advice.

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