Hey, Facebook, you just had your best month ever. What are you going to do now ?
November was a good month for Facebook shareholders. Shares of the social networking giant's stock rose 30 percent, making for its best monthly performance since going public in May. Now, the stock could see an important status update, with a likely inclusion into the Nasdaq 100 index before year's end.
"Any time a major stock can get added to an index like that, it's good news for the company in terms of share price," said David Weild, Chairman and CEO of Capital Markets Advisory Partners, and a former Vice Chairman of Nasdaq.
"You usually do get a bit of bump," he explained, because funds that track the index have to buy the shares. " It creates demand."
Facebook (NASDAQ: FB) is currently the Nasdaq-listed company with the largest market valuation that is not included in the Nasdaq 100 Index, making it the most likely firm to replace IT-services firm Infosys (NASDAQ: INFY) as early as December 12th, when the company will switch its listing to the New York Stock Exchange from Nasdaq.
There are more than seven thousand funds and other financial products globally that track the Nasdaq 100 Index, according to Nasdaq. The most well known of these funds is the Powershares QQQ Trust ETF, often refered to as the QQQs.
But Art Hogan, Lazard Capital Markets head of Product Strategy says being added to the QQQs may not provide much of a boost for Facebook, compared to inclusion in the more widely-tracked S&P 500.
"Looking behind the fundamentals behind what drive a move, the S&P is the largest benchmark," said Hogan.
Under S&P's indexing rules, a company's shares usually have to be publicly listed and the firm needs to have reported a full year of quarterly earnings for it to be eligible for addition to S&P 500.
"That's the guidance," explained Howard Silverblatt, S&P senior index analyst. "You really want more stability."
But even if it is added to the benchmark S&P next year, it may not provide such a big gain for Facebook. While it may push some funds to buy it for the first time, there are a lot of institutional investors that have already bought into the stock, including Fidelity which boosted its stake by 20 million shares in the third quarter, when Facebook shares fell to nearly half its $38 IPO price.
"This was a have-to-own stock for a lot of institutions, " said CMA's David Weild.
Facebook shares are still down 26 percent from their May IPO, despite the strong rally in November. Weild believes FB's likely inclusion in the Nasdaq 100 will be a positive catalyst for the stock.
"It should help the stock trade at a premium to where it otherwise would have traded."
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image: © West McGowan