Tesla gearing up for S&P 500

Tesla Inc., Elon Musk’s 17-year-old upstart carmaker, took a giant step toward blue-chip respectability recently, getting named to one of the world’s most famous stock indexes in an action that will greatly broaden its investor base.

The announcement that Tesla will enter the S&P 500 on Dec. 21 follows months of speculation, and one temporary setback, after the stock failed to make the cut during the index’s quarterly rebalancing in early September.

The anticipation has helped drive a nearly fivefold rally in the stock this year to almost $390 billion, making the electric vehicle pioneer the biggest company ever to be added to the gauge. It will also be one of the index’s most influential constituents with a weighting that falls around those of Berkshire Hathaway Inc., Johnson & Johnson and Procter & Gamble Co.

It’s so big that S&P Dow Jones Indices said it is seeking feedback from the investment community to determine if Tesla should be added all at once or in two separate pieces. The company that Tesla is to replace in the index will be named later, the index provider said.

The news of S&P 500 inclusion “will of course likely drive a rally in the stock today,” JMP Securities analyst Joseph Osha wrote in a note to clients last week. “We think there is still upside,” he said, adding that Tesla should be valued like other “category killer” companies such as Apple Inc., instead of compared with other car companies. Osha reiterated his market outperform rating and price target of $516. Tesla shares jumped 12% in premarket trading to $456 on the news.

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“This was a little unexpected happy day for me,” said Ross Gerber, chief executive officer at Gerber Kawasaki Inc. Tesla is the top holding for the Santa Monica, Calif.-based wealth management firm, with approximately 130,000 shares worth about $55 million as of Monday’s close.

After analyzing the index earlier this month, “it was…

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