Enphase Energy (NASDAQ:ENPH) will start the New Year off with a bang as the company has been tipped to join the S&P 500 Index. This will occur before market open next Thursday, Jan. 7.
The S&P 500's operator, S&P Dow Jones Indices, announced the news on Wednesday. With its ascension, Enphase replaces luxury goods maker Tiffany & Co. Following a fairly tortuous takeover saga, LVMH Moet Hennessy Louis Vuitton is acquiring Tiffany, so the latter will cease to be an independent company.
Enphase is not exactly new at the S&P Index table. At the moment, it belongs to the S&P MidCap 400 Index. Filling its position on that index will be Capri Holdings, a fashion company founded by well-known American designer Michael Kors (his company, it so happens, was once an S&P 500 Index component).
On Thursday, Enphase shares closed nearly 1.5% higher, well outpacing the gains of the index it will soon be joining. This is frequently what happens when companies "graduate" to the S&P 500, as investors look forward to a stock's higher visibility.
They also hope that the shares will benefit from inclusion in some of the very many index funds popular on the market just now; as a benchmark stock index, the S&P 500 is fertile hunting ground for the managers of such instruments.
However, existing and potential Enphase shareholders should be aware that research has generally shown this initial pop doesn't last. While it is certainly good news for the company, its fundamental performance will have much more impact on the attractiveness of the stock than inclusion in the rarefied club of S&P 500 Index components.