The last financial year started so promising but fizzled towards the end. The silver lining is that FY21 is likely to be better and here are some stocks to consider for your portfolio.

Why the optimism after the S&P/ASX 200 Index (Index:^AXJO) slumped by the worst in eight years? I think global markets have passed “peak” COVID-19 shock and things have to get very much worse to send it tanking to the bear market low of March.

But my increasing bias towards value stocks over growth has been derailed by what’s happening in my home state of Victoria.

Value vs. Growth

As Australia looked to have squashed the coronavirus-curve and was poised to reopen state borders, I believed investors would increasingly hunt for ASX shares that are lagging behind.

Growth stocks like Afterpay Ltd (ASX: APT), which typically trade at a hefty premium, were looking too expensive.

But threats of a second wave of COVID-19 infections mean the rotation towards value stocks is put on hold for now. I suspect we may have to wait till the end of calendar 2020 for things to change.

Expensive stocks looking “cheap”

This means it’s too early to be shedding or shunning growth stocks, although I am reluctant to touch Afterpay as its valuation seems a little too extreme.

This sounds like an oxy-moron, but there are better priced “expensive ASX stocks” to put on your watchlist.

One perennial favourite among mum and dad investors is Commonwealth Bank of Australia (ASX: CBA). The bank is the least favourite of the big four among brokers, but that’s due to its outperformance.

As I’ve mentioned before, high valuations won’t be the downfall of growth stocks. Investors are happy to pay for certainty in this environment and CBA is the best quality bank stock you can own.

Gold to keep shinning in FY21

Another group of stocks that got hit by broker downgrades in recent times are gold miners like Newcrest Mining Limited (ASX: NCM) and Evolution Mining Ltd (ASX: EVN).

Again, that’s due to valuation (the sector’s been running hot) and the rising Australian dollar. But the precious metal is the ultimate safe haven asset in my view and I think gold can climb to new records in FY21.

As long as the miners can avoid any production hiccups, I think these stocks will remain well supported.

Other growth stocks on my list

I would also put CSL Limited (ASX: CSL) on the list of growth stocks to own in FY21. Shares in the blood products developer may have softened towards the end of FY20 following its strong rally, but I think it will draw fresh support over the coming months for quality management and its defensive qualities.

Finally, the iron ore majors make up a major part of my portfolio and I expect them to keep outperforming in this new financial year.

These include the BHP Group Ltd (ASX: BHP) share price, Rio Tinto Limited (ASX: RIO) share price and Fortescue Metals Group Limited (ASX: FMG) share price.

They probably the only large cap growth stocks that aren’t trading at significant premiums – particularly if you believe the price for the commodity will hold around current levels in FY21.

The relatively bright outlook for the steel making ingredient and their robust balance sheets make them one of my favourite stocks to hold in the year ahead.

More reading

• Why I’d buy and hold a2 Milk shares until 2025
• 3 ASX ETFs to hedge your portfolio
• These were the best performing ASX 200 shares in FY 2020
• These were the worst performing ASX 200 shares in FY 2020
• Can the Coles share price climb 12% again in July?

Brendon Lau owns shares of BHP Billiton Limited, Commonwealth Bank of Australia, Evolution Mining Limited, Newcrest Mining Limited, and Rio Tinto Ltd. Connect with me on Twitter @brenlau.

The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of CSL Ltd. The Motley Fool Australia owns shares of AFTERPAY T FPO. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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Temple & Webster Group Ltd (ASX: TPW) quadrupled in value during FY20 despite bushfires, pandemics and lockdowns. The share price started the financial year at $1.38 and finished at $6.31 on Tuesday, 30 June. The company ended the year on a market capitalisation of $717.7 million.

The company sells furniture and kitchenware via a drop shipping operations model. That means they ship directly from the manufacturer to the customer. In addition, Temple & Webster also has Milan Direct, its private label brand. Milan Direct is sold on the company’s marketplace platform and sold wholesale to distributors. 

Like many other companies, Temple & Webster saw an increase in online sales during the lockdown. On 18 June the company announced revenue growth of 90% against the previous corresponding period (PCP). That is an outstanding level of revenue growth echoed in other companies with online sales channels.

Pandemic trading

During the lockdown, the company saw a dramatic improvement in performance. Revenue rose by 68% YTD and earnings before interest, depreciation, and amortization (EBITDA) rose by an astounding 668%. Moreover, the company’s active customers increased by 68% to 440,257. The company’s share price rose more than 8% over the 3 days after this announcement.

The unpredictable element is, what happens once the lockdown is over? Temple & Webster CEO and Co-founder, Mark Coulter, said:

“…We can already see in our numbers that many of the customers who have never shopped with us before, and may be first time online shoppers in our category, have already returned and made repeat purchases…”

This bodes well. It is also supported by Australia Post data which shows that e-commerce growth rose by 80% in the 8 weeks following the World Health Organization’s (WHO) announcement. They believe that this year online sales will reach 15% of all retail sales. That is 3–5 years ahead of previous forecasts.

Share price history

As a company Temple & Webster is still very much in the growth phase. The company has only turned a profit once in FY19 since listing in 2015. As it recorded earnings it also recorded its first return on equity (ROE) figures. This was very impressive at 24.7%. This means the company returned about a quarter of the net asset value.

The company’s share price has increased 585.87% since listing.  The vast majority of this growth has been in FY20, and most of that was after the 23 March market trough.

Foolish takeaway

Temple & Webster benefited greatly from the COVID-19 lockdown. Not only did they see a large percentage of new customers, but many of them were repeat users of the website. The likelihood that they will continue with high online sales after the hard lockdown is reasonably high. At the very least the company has had a chance to impress new people. Time will tell if they were successful.

Most interesting from these figures was the huge leap in EBITDA. It implies a solid cost base that is able to service sales levels far above the level of, say, Christmas of 2019 with little additional costs. 

More reading

• E-commerce is the COVID-19 success story. These businesses are the clear winners.
• These ASX retail shares are lockdown winners
• Short-sellers are stepping up their attack against these popular ASX shares
• Temple & Webster shares continue to grow despite coronavirus restrictions
• Why A2 Milk, Afterpay, Mesoblast, and Temple & Webster are pushing higher

Daryl Mather has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Temple & Webster Group Ltd. The Motley Fool Australia has recommended Temple & Webster Group Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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After a strong start to the financial year, the S&P/ASX 200 Index (ASX: XJO) gave back its gains and more during the coronavirus crisis. This led to the benchmark index ultimately recording a 10.9% decline for the 2020 financial year.

Not all shares were out of form during the 12 months. Here’s why these ASX 200 smashed the market:

Afterpay Ltd (ASX: APT)

The Afterpay share price was the best performer on the ASX 200 during the 2019-20 financial year with a gain of 150%. Investors were fighting to buy the payments company’s shares after it continued its meteoric customer and sales growth. This was especially the case during the pandemic when many feared its business model would struggle. In addition to this, the arrival of WeChat owner Tencent as a substantial shareholder has got investors excited. They believe Tencent could open the door to the Asia market for Afterpay.

Perseus Mining Limited (ASX: PRU)

The Perseus Mining share price wasn’t far behind with an impressive 140% gain during the last financial year. Investors have been buying the gold miner’s shares following a sharp rise in the price of the precious metal. This has been driven by increasing demand for safe haven assets during the pandemic. In addition to this, a solid production performance, the development of Yaoure, encouraging exploration results at Sissingue’s Zanikan prospect, and its inclusion in the ASX 200 index have given its shares a lift.

Mesoblast Limited (ASX: MSB)

The Mesoblast share price was on form and surged 129% higher during the last 12 months. The majority of this gain has come in the last few months after investors responded positively to trial results. Mesoblast’s allogeneic cellular medicine remestemcel-L has performed strongly in COVID-19 infected patients with moderate to severe acute respiratory distress syndrome (ARDS) on ventilator support. Mesoblast was also added to the ASX 200 at the recent rebalance.

Fisher & Paykel Healthcare Corporation Ltd (ASX: FPH)

The Fisher & Paykel Healthcare share price wasn’t far behind with a 116% gain during the financial year. Investors were buying the medical device company’s shares following a series of guidance upgrades and an impressive full year result. This was driven largely by strong demand for its ventilators during the pandemic. In FY 2020, operating revenue increased 18% to NZ$1.26 billion and net profit jumped 37% to NZ$287.3 million.

More reading

• Why I’d buy and hold a2 Milk shares until 2025
• 3 ASX ETFs to hedge your portfolio
• ASX 200 stocks to watch for FY2021
• These were the worst performing ASX 200 shares in FY 2020
• Can the Coles share price climb 12% again in July?

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of AFTERPAY T FPO. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The coronavirus crisis weighed heavily on the S&P/ASX 200 Index (ASX: XJO) in FY 2020 and led to it having its worst 12 months since 2012. The benchmark index recorded a 10.9% decline over the year.

While a good number of shares dropped lower with the index, some fell more than most. Here’s why these were the worst performers on the ASX 200 during the last financial year:

Southern Cross Media Group Ltd (ASX: SXL)

The Southern Cross Media share price was the worst performer on the ASX 200 during the financial year with a massive 80.7% decline. Investors were selling the media company’s shares amid concerns that the coronavirus crisis could impact advertising revenues materially. Also weighing heavily on its shares was a highly dilutive capital raising at the height of the pandemic.

oOh!Media Ltd (ASX: OML)

The oOh!Media share price wasn’t far behind with a disappointing decline of 71.7%. This was also driven by extremely weak advertising markets, which look likely to lead to it falling well short of its (withdrawn) guidance this year. And with many advertisers pushing back their campaigns until after the crisis passes, this weakness could continue for a little while to come. A $167 million fully underwritten equity raising (at a 37% discount to its last close price at the time) also weighed on its share price performance.

Flight Centre Travel Group Ltd (ASX: FLT)

The Flight Centre share price was a very poor performer and fell 70.1% during the last financial year. The pandemic was of course to blame for this one. Investors were heading to the exits in their droves after borders were closed and travel bookings collapsed. In addition to this, Flight Centre was forced to undertake a material capital raising to give it sufficient liquidity to survive the crisis.

G8 Education Ltd (ASX: GEM)

The G8 Education share price was out of form and recorded a disappointing 67.7% decline during the 12 months. The childcare centre operator has experienced a sharp reduction in its occupancy level because of the pandemic. And while the government did offer support to the industry, it wasn’t enough to stop the company from launch a highly dilutive $301 million equity raising. Unsurprisingly, G8 has also suspended its dividends for the foreseeable future.

More reading

• Why I’d buy and hold a2 Milk shares until 2025
• 3 ASX ETFs to hedge your portfolio
• ASX 200 stocks to watch for FY2021
• These were the best performing ASX 200 shares in FY 2020
• Can the Coles share price climb 12% again in July?

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Flight Centre Travel Group Limited and oOh!Media Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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In morning trade the NEXTDC Ltd (ASX: NXT) share price is charging higher following the release of a positive announcement.

At the time of writing the data centre operator’s shares are up over 8% to $10.72.

This latest gain means that NEXTDC’s shares are now up 64% since the start of the year.

Investors have been buying the company’s shares after the pandemic accelerated the shift to the cloud and demand for data centre capacity.

What did NEXTDC announce?

This morning NEXTDC announced that its data centres in New South Wales have won several material customer contracts.

According to the release, the company’s contracted commitments at its New South Wales data centre facilities have now increased by approximately 4MW, to more than 36MW.

But it doesn’t stop there. Contracted customer commitments plus expansion options at its data centres in the state are now approaching a sizeable 60MW.

In light of this, NEXTDC has committed to completing the Sydney-2 centre fit-out to a total planned capacity of 30MW.

What now?

Management advised that revenue recognition for these new contracted commitments is expected to commence during FY 2021. This will be after the completion and commissioning of the associated data halls.

The company’s CEO and Managing Director, Craig Scroggie, was pleased with the wins and notes that demand for its services has been growing quicker than expected.

He said: “The demand for our data centre services continues to accelerate and exceed our expectations, yet requires discipline and patience as the nexus between the hyperscale capacity planning, site development, infrastructure deployment and revenue recognition can in practice be 2-3 years for these very large hyperscale developments.”

“This is all part of NEXTDC’s digital infrastructure business model, which continues to build long term value through contracted capacity and tangible asset backing,” he concluded.

More reading

• Top ASX Stock Picks for July 2020
• Where I would invest $10,000 into ASX shares in FY 2021
• 2 quality ASX shares I would buy with $10,000 in July
• 3 stellar ASX tech shares to buy in July
• Here are 3 top ASX tech shares to buy with $5,000 today

Motley Fool contributor James Mickleboro owns shares of NEXTDC Limited. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The Wesfarmers Ltd (ASX: WES) share price has recovered strongly since the early phase of the coronavirus pandemic. The company’s share price has risen by 44% from its low of $31.02 on 23 March to close yesterday at $44.83.

Wesfarmers has operations spanning a broad spectrum of the Australian economy. This provides it with a buffer to any industry-specific challenges that may come its way. In particular, Wesfarmers’ online offerings have seen increased demand during the coronavirus crisis.

So, is the Wesfarmers share price in the buy zone right now?

Online sales continue to grow strongly

Wesfarmers provides online retail offerings via its Target and Kmart offerings, as well as its pure online offering, Catch. 

Online demand been particularly strong in recent months, as consumers have stayed away from brick-and-mortar stores. Online sales for Catch have risen by a whopping 69% in the half-year to date up to early June. In comparison, Catch’s online sales only rose by 21% in the 6 months ending December last year.

Although online sales growth for Wesfarmers is likely to be more subdued as the coronavirus pandemic eases further, consumer habits may to some degree have changed permanently. Many Australians are finding that the online channel is very attractive due to its convenience and price competitiveness over physical stores.

Bunnings and Officeworks continue to be star performers

Wesfarmers’ Bunnings and Officeworks stores have continued to perform strongly in recent months. For the half year to date until early June, Bunnings’ sales rose by 19.2%, compared to growth of just 5.8% during 1H20. Officeworks also has seen strong recent growth due to more Australians purchasing goods to help them work and learn in a home environment during the pandemic.

Target, however, continues to be a problem for Wesfarmers. In late, May Wesfarmers announced it will implement a strategy to downsize its underperforming Target store network.

So, does the Wesfarmers share price offer good value to investors right now?

The Wesfarmers share price has rallied strongly in recent months, regaining nearly all of its share price losses incurred during the initial period of the coronavirus pandemic. Wesfarmers shares also rose strongly in the 12 months prior to the pandemic, so are no longer looking cheap.

Despite this, I still believe the Wesfarmers share price is in the buy zone. The long-term growth potential of Wesfarmers remains strong driven by a diversified portfolio of quality assets. In particular, I feel that its Bunnings chain has the potential to grow further over the next decade.

More reading

• E-commerce is the COVID-19 success story. These businesses are the clear winners.
• ASX 200 Weekly Wrap: ASX retreats as confidence wanes
• 3 fantastic ASX dividend shares to buy next week
• ASX shares vs property: which is a better investment?
• Wesfarmers and one more ASX share I’d buy in another market crash

Motley Fool contributor Phil Harpur has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of Wesfarmers Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The Coles Group Ltd (ASX: COL) share price rocketed 11.8% higher in June, but can it repeat the trick this month?

Why the Coles share price surged in June

There have been no new ASX announcements from the Aussie supermarket group since 22 May. This means it’s purely investor sentiment that has pushed the Coles share price higher in June.

Prior to June, Coles’ market value had been sinking lower for a couple of months. As it stands right now, the ASX supermarket share is worth $22.9 billion and is firmly inside the ASX 20.

Coles wasn’t the only ASX share to climb higher in June with the S&P/ASX 200 Index (ASX: XJO) gaining 2.5% to close the month at 5,897.9 points.

In relation to the Aussie supermarket sector, there was one announcement that piqued my interest last month, however it wasn’t from Coles. SCA Property Group (ASX: SCP) provided a trading update and it suggested some good news for supermarkets like those run by Coles and Woolworths Group Ltd (ASX: WOW).

SCA reported that sales performance for a number of its tenants had been volatile due to the coronavirus pandemic, but the supermarkets were doing better than most. In fact, SCA’s supermarket tenants increased year-on-year moving annual turnover by 4.4% through to 31 May 2020.

That could be a good sign for Coles’ earnings, as we will likely discover in August this year. If the Aussie supermarket group shows a strong growth trajectory, I think the Coles share price could finish the year strongly.

For context, the Woolworths share price also climbed 5.5% higher in June to $37.28 per share. 

Is Coles good value at the moment?

I always like to look at the relative value of shares against their peers. Woolworths shares are currently trading at a price to earnings (P/E) ratio of 18.6x compared to 19.3x for Coles.

This to me says there isn’t a huge difference in the current valuations for the ASX supermarket shares. That said, I still think July could be another strong month for the Coles share price if robust sales continue.

However, I also think the group’s August earnings result will be a good barometer of what to expect for the rest of 2020.

More reading

• The Fortescue share price rose 51% in FY20. Too late to buy?
• Up nearly 33% in 12 months. Can the CSL share price climb higher?
• Afterpay and these shares were the best performers on the ASX 200 in June
• Webjet and these shares were the worst performers on the ASX 200 in June
• 5 things to watch on the ASX 200 on Wednesday

Motley Fool contributor Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of COLESGROUP DEF SET and Woolworths Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The Flight Centre Travel Group Ltd (ASX: FLT) share price was out form last month and tumbled a disappointing 15% lower.

Concerns over a delay in the recovery of tourism and travel markets appear to have been weighing on the travel agent’s shares.

It is perhaps because of these same concerns that Flight Centre has just announced its decision to take on more debt.

What did Flight Centre announce?

This morning Flight Centre announced that it has secured access to a debt facility of up to 65 million pounds.

According to the release, the company intends to draw down these funds as and when it is necessary to help offset the coronavirus’ impact on its United Kingdom-based operations.

The release explains that this funding has been made available to the company via the Bank of England’s COVID Corporate Financing Facility.

This is a program that has recently been implemented in the UK. It has been designed to support short-term liquidity among companies as they work to overcome the disruption caused by the pandemic and the restrictions that have been put in place to limit its spread.

The initial notes that will be issued under the facility are scheduled to mature in March 2021. However, management believes they should be capable of being extended for a further 12 months through the issue of further notes under the facility.

Should you invest?

While I believe that Flight Centre now has ample liquidity to ride out the storm, I wouldn’t be in a rush to invest.

Given the dilution of its equity raising and the likelihood that the next couple of years could be very tough, I believe investors will be able to pick up Flight Centre shares at much fairer prices in the future. In light of this, I think it would be best to keep your powder dry for the time being.

More reading

• Webjet and these shares were the worst performers on the ASX 200 in June
• ABS reveals which industries (and ASX shares) may rebound hard after COVID-19
• ASX 200 drops 1.15%: Fisher & Paykel Healthcare impresses, big four banks tumble
• These were the worst performing ASX 200 shares last week
• Share price winners and losers of the pandemic

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Flight Centre Travel Group Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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Of all of the major ASX blue chip shares, Fortescue Metals Group Limited (ASX: FMG) has probably had the best financial year.

It being the first day of July, it’s now time to welcome in FY2021. This gives us a great opportunity to see how some S&P/ASX 200 Index (ASX: XJO) shares have performed over the past 12 months.

And boy, has Fortescue performed.

On 1 July 2019, Fortescue Metals was asking $9.15 per share (which at the time seemed high in its own right). But fast forward to today, and Fortescue closed the financial year at $13.85. That’s a handy 51.37% gain for the year and a ‘time-and-a-half’ return for investors. If you include Fortescue’s hefty, fully franked dividend payments, the return is even better at somewhere around 58.5%. It’s not the highest return you could have achieved from an individual ASX 200 share, but it’s certainly better than a poke in the eye!

Why did Fortescue shares go bananas in FY20?

There’s one major reason Fortescue shares have raised the roof in FY20: the price of iron ore. That’s because Fortescue is about as pure an iron ore play that you can find on the ASX 200. It generates approximately 95% of its revenues from the extraction and shipping of iron ore. In its latest annual report (2019), Fortescue told investors its rough cost of extracting and selling one tonne of iron ore came in around US$12-13. Now, the iron ore price has fluctuated wildly over the past 12 months (as it is wont to do). Over the first half of the financial year, we saw prices go from over US$115 per tonne to as low as US$80 per tonne.

But over the course of the calendar year, albeit with a few ups and downs, overall the opposite swing has occurred. Back in early April, iron ore was asking around US$77 per tonne. But today, the iron ore price is back over US$100 and is seemingly looking like staying there. This has mostly been the result of a supply squeeze sparked by collapsing output from the Brazilian market (which has been extremely hard hit by the coronavirus pandemic).

And it’s this price swing that I think has been behind the massive surge in Fortescue shares over the past year.

Is Fortescue a buy today?

Normally, I am distrusting of ASX resources shares. They are more or less subject to the whims of the commodity market, which can easily double or erase a miner’s profitability in any given year. But Fortescue is an extremely well-run company with, in my view, one of the most successful management teams on the ASX, headed by the reputable Andrew ‘Twiggy’ Forrest. Due to Fortescue’s superbly low cost base for mining iron ore, I think the company will be well-placed this year to continue to grow and pay healthy dividends. And this is of utmost importance at a time when most ASX dividend payers are struggling. I wouldn’t call Fortescue shares cheap right now, but I would also happily consider them for a well-rounded ASX dividend portfolio.

More reading

• Can the Coles share price climb 12% again in July?
• Up nearly 33% in 12 months. Can the CSL share price climb higher?
• 2 shares to buy before earnings season
• Afterpay and these shares were the best performers on the ASX 200 in June
• Webjet and these shares were the worst performers on the ASX 200 in June

Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

What happened

Shares of renewable-energy company Tesla (NASDAQ: TSLA) surged to all-time highs on Tuesday, and the reason isn’t obvious. CEO Elon Musk sent out an email to talk about “breaking even,” reminding Wall Street this stock may be mere weeks away from inclusion in the S&P 500. 

As of 2:00 p.m. EDT, Tesla stock was up 6.5%. But earlier in the session, it was up a little higher and briefly achieved a market capitalization of $200 billion for the first time. 

TSLA data by YCharts

So what

Once a quarter, a committee adjusts the S&P 500. New companies are often added while others are removed. To be considered, companies must meet various eligibility requirements. Tesla already meets some requirements, like being based in the U.S. and having a price per share over $1. But it’s lacked profitability.

Four consecutive quarters of profitability are needed to be considered by the committee. Tesla has reported three consecutive quarters. Considering it’s already a large-cap stock headed into mega-cap territory, a fourth consecutive quarter of profits would make it a shoo-in for inclusion into the S&P 500.

According to CNBC, a leaked email from Musk encouraged employees to “go all out” because “[b]reaking even is looking super tight.”  Without more context, it’s hard to know what this means. But it appears Musk needs more productivity from his workers down the stretch of the quarter to be profitable. And Musk is likely aware of what’s at stake if the company swings to the green.

As a reminder, Tesla’s fiscal quarter ends today, providing a small window of opportunity.

Now what

So why would investors be excited about Tesla getting included in the S&P 500? Tesla is a polarizing stock, with passionate investors on both sides. At times, this makes Tesla stock volatile. Consider that it’s up over 150% in 2020, but it also fell more than 60% from February to March. That’s a wild ride.

Once in the S&P 500, that volatility could mitigate. Tesla stock will be purchased for index funds, and as long as it’s in the club, those shares won’t be sold. It could create a floor for Tesla stock. However, while it’s an interesting development for Tesla shareholders, it doesn’t make the stock a buy in isolation. Investing in stocks for the long haul requires a good assessment of the underlying business as well.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

More reading

• These 2 ASX shares are perfect for a beginner investor
• Millennials be warned! Signs of dangerous ASX share trading grow

Jon Quast has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Tesla. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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