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- Large-cap mutual funds are set to fuel a massive rally for Tesla stocks, Goldman Sachs said Thursday.
- The automaker is expected to join the S&P 500 on December 21 as one of its 10 most valuable members.
- Of the 189 large-cap core funds tracked by Goldman, 157 funds managing around $ 500 billion do not yet own Tesla shares, the bank said.
- If the funds aim to keep Tesla at benchmark weight when it enters the index, it will buy around $ 8 billion of shares shortly after the automaker’s inclusion, Goldman added.
- Watch Tesla Trade Live Here.
Tesla’s planned inclusion in the S&P 500 has already lifted stocks in recent sessions, but Goldman Sachs sees a surge of mutual fund liquidity fueling another rally in December.
The S&P Dow Jones Indices revealed on Monday that the automaker will join the benchmark on December 21. With a market cap of around $ 473 billion, Tesla will enter the index as one of the 10 most valuable members.
The news ended months of speculation about when the automaker would join the index, and bullish investors pushed shares up 13% on the day of the announcement.
Still, some of the biggest players in the market have yet to stack up. Large-cap mutual funds that follow the pending S&P 500 on the sidelines may fuel massive demand for stocks once Tesla officially joins the index, strategists led by Arjun Menon said Thursday.
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“Of the 189 large-cap core funds in our universe, 157 funds with approximately $ 500 billion in assets under management did not own Tesla on September 30,” the team said. Those funds are expected to buy around $ 8 billion worth of shares, assuming they are aimed at keeping the automaker at benchmark weight, they added.
Tesla became eligible to join the index in July after reporting its fourth consecutive quarterly profit. The S&P 500 requires members to be US-based, trade on the New York Stock Exchange, Nasdaq or Cboe, have a market capitalization of at least $ 8.2 billion, and have four consecutive quarters of profitability on a GAAP database.
If all the criteria are met, a group called the Index Committee deliberates on whether to replace a current index member.
The S&P Dow Jones indices have yet to reveal which member they are removing to make room for Tesla.
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The automaker’s inclusion comes as some of its most notable skeptics turn more optimistic to the company. Morgan Stanley on Wednesday upgraded its rating on Tesla to “overweight” to “equal weight” for the first time since 2017, saying its software and services businesses present strong growth opportunities.
“Valuing Tesla solely on car sales ignores the multiple activities embedded in the business and ignores the long-term value creation resulting from the monetization of Tesla’s core strengths, driven by the best software and ancillary services,” said the bank analysts.
Tesla traded at $ 495.62 per share at 10:45 a.m. ET, up about 501% year-to-date. The company has 22 “buy” ratings, 41 “hold” ratings and 20 “sell” ratings from analysts.
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