Two Stocks on the Brink of Joining the S&P 500


Be added to the S&P 500 Index (SPX) is a big problem for all fairness. Fund managers who follow the S&P 500 will need to buy the stock to stay on target. All of these buy orders can raise the stock price and bring more attention to the stock. Buying a stock before it joins the S&P 500 can net an investor a good payday. Some companies falling into this category have great potential to outperform the market, and some already have a track record of outperforming the market.

The S&P 500 index is not open to all companies. The index has several standards for inclusion, but here are the basic requirements:

Investors can refine their search with these parameters to find the next stocks likely to join the S&P 500. I identified Super Micro Computer (NASDAQ:SMCI) and the elf beauty (NYSE:ELF) as two promising values which may be added to the S&P 500 this year. I am optimistic about both.

The Bull case for Super Micro Computer

Super Micro's inclusion in the S&P 500 seems inevitable. The company has capitalized on the demand for artificial intelligence by offering servers that can handle the intense workloads of AI chips and tools. The stock has beaten the market with a 145% year-to-date gain, a 675% gain over the past year and a Gain of 4,324% over the last five years.

Super Micro reported net profit of $640 million in fiscal 2023 and continues to generate profitable quarters. Supermicro also meets the market capitalization requirements with a good margin of safety. The stock currently trades at a market cap of $39 billion.

Latest Super Micro Earnings Report and forecasts suggest there is more room for stock to flow. For example, revenue growth was 103% year-over-year in the second quarter of fiscal 2024, and the midpoint of SMCI's raised guidance (3.7 billion to 4.1 billion dollars in sales expected in the third quarter of fiscal 2024) suggests that revenues will more than triple for the year. over a year in the third quarter.

The company's continued growth will lead to more growth once it is added to the S&P 500 index since it is a weighted index. This type of index prioritizes stocks based on their market capitalization. In other words, as SMCI's market cap increases, fund managers will need to buy more shares to stay in line with the S&P 500.

These purchases will fuel the stock's market capitalization and can create a positive loop. This is why all of the largest holdings in the S&P 500 are companies worth billions of dollars.

Is SMCI Stock a Buy, According to Analysts?

Based on four attributed buys, one hold and one sell in the last three months, SMCI stock is rated a Moderate Buy. Currently, analysts suggest that SMCI stock has 19.4% drop potential, but investors should take this conclusion with a grain of salt. One of the price targets is from December 2023, which significantly lowers the stock's average price target.

The Taurus affair for the elf beauty

elf Beauty is the second stock likely to join the S&P 500 soon. The company's entry could be delayed until next year since its market capitalization is around $9.5 billion. That's just short of the $12.7 billion market cap requirement, but strengthening financials suggest this hurdle won't pose a problem for the company.

elf Beauty uses only ethical ingredients in its beauty products and continues to gain market share in the industry. This approach has worked well for the company based on its 20 consecutive quarters of net sales growth.

elf Beauty closed the third quarter of fiscal 2024 with 85% year-over-year growth income growth and net profit growth of 40.8% year-on-year. Revenue growth accelerates from the company's 80% revenue growth rate for the nine months ended December 31, 2023.

elf Beauty significantly raised its outlook for fiscal 2024. The company's revenue and net profit saw increases of 9.3% and 13.8%, respectively.

Although elf Beauty is not yet eligible for inclusion in the S&P 500, it has significantly outperformed the market. The stock is up 14% year to date, 131% over the past year, and 1,664% over the last five years.

Is ELF Stock a Buy, According to Analysts?

On TipRanks, ELF stock ranks as a Moderate Buy based on eight Buys, five Holds, and no Sell ratings assigned over the last three months. THE average price target for ELF stock of $196.58 implies an upside potential of 14.6%.

The essentials on Supermicro and elf Beauty Stock

Super Micro Computer and elf Beauty are two stocks to watch that may be added to the S&P 500. SMCI is already eligible and appears to be an easy choice due to its tailwinds and growth opportunities. elf Beauty is close to qualifying but is growing rapidly. It may take longer for the beauty company to earn its place on the famous index.

Both Super Micro and elf Beauty have outperformed the stock market over the past year and over the past five years. These stocks can generate positive returns as investors wait for them to potentially be added to the S&P 500.

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