What happened

Shares of Palo Alto Networks (PANW 0.11%) got a 5% bump Monday morning on the first trading day after it was announced that the stock will be joining the S&P 500 index.

S&P Dow Jones Indices announced Friday evening, after close of trading for the week, that before trading opens on Tuesday, satellite TV operator Dish Network (DISH) will drop out of the S&P 500 index of America's largest companies and fall into the S&P SmallCap 600 index instead.

Its place in the S&P 500 will be taken by cybersecurity company Palo Alto.  

So what

Investors should be aware that this change doesn't directly affect the fundamentals of either business. It's simply a reflection of the fact that, with its stock up 27% over the past year and valued at nearly $70 billion, Palo Alto is now a very big company -- while with its stock down 66% over the same period, and now valued at less than $4 billion, Dish is a much smaller company.

The former therefore belongs in the S&P 500 index of big companies; the latter belongs in the S&P 500 index of smaller companies. It's really as simple as that.

Regardless, investors today are presumably buying up Palo Alto shares on the theory that, come Tuesday, mutual funds and ETFs that try to mimic the holdings of the S&P 500 will be out shopping for Palo Alto stock to reflect the new composition of that index.

Now what

This is not to say, however, that investors are acting illogically in buying Palo Alto shares today. For one thing, the fact that index funds and ETFs will be buying Palo Alto stock tomorrow probably will create some temporary "buying pressure" that could lift the stock price. In the short term, therefore, snapping up some Palo Alto stock today could be a good call.

In the short term...and the long term, too. After all, Palo Alto just finished reporting quarterly sales growth of 24%, strong profits, and more than $400 million in positive free cash flow, whereas Dish Network is coming off a quarter in which sales declined 9% -- and profits plunged 48%.

That may or may not be a good reason to sell Dish stock today, but it's certainly a good reason to buy Palo Alto Networks.