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On Wednesday I looked at three ASX shares that brokers have given buy ratings to this week.

Unfortunately, not all shares are in favour with them right now. Three ASX shares that have just been given sell ratings by brokers are listed below.

Here’s why these brokers are bearish on them:

ASX Ltd (ASX: ASX)

According to a note out of Morgan Stanley, its analysts have retained their underweight rating and cut the price target on this stock exchange operator’s shares to $67.90. The broker has reduced its earnings estimates on the belief that the company will have to increase its operating expenses to ensure the stability of its trading systems. Particularly given the company’s plan to replace the CHESS distributed ledger in the coming years. In addition to this, lower interest rates are expected to weigh on its margins slightly. The ASX share price is fetching $81.75 this afternoon.

St Barbara Ltd (ASX: SBM)

A note out of Macquarie reveals that its analysts have retained their underperform rating and cut the price target on this gold miner’s shares to $2.30. According to the note, the broker has reduced its earnings estimates after downgrading its gold price forecasts for the coming years. It believes improvements in 10-year U.S. bond yields will put pressure on the precious metal. The St Barbara share price is trading at $2.58 on Thursday.

United Malt Group Ltd (ASX: UMG)

Analysts at Credit Suisse have downgraded this commercial maltster’s shares to an underperform rating but lifted the price target on them to $4.23. This follows the release of its FY 2020 results this week. Although that result was ahead of its expectations, it notes that this was partly due to government assistance and temporary cost reductions. Something which may not be repeated in FY 2021. Credit Suisse also appears to have concerns over a contraction in the craft brewing market. The United Malt share price is changing hands for $4.59 this afternoon.

More reading

• Why the United Malt (ASX:UMG) share price has lifted 4% higher today
• ASIC rips into ASX again as more systems go down
• What caused the ASX outage on Monday trading?
• ASIC to investigate if ASX is fit to hold market licence
• ASX trading halt to remain in place for the rest of the day

Motley Fool contributor James Mickleboro 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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One of the biggest shifts in sentiment we have seen so far in 2020 on the S&P/ASX 200 Index (ASX: XJO) is arguably in the banking sector. ASX bank shares have had a shocker of a year, if the numbers are anything to go by.

The ASX’s largest bank, Commonwealth Bank of Australia (ASX: CBA) actually hasn’t faired too badly. The CBA share price was trading at $79.88 at the start of the year, just a whisker above the current share price (at the time of writing) of $77.91. However, the high of $91.05 that CBA saw in February (just before the coronavirus-induced market crash) still looks out of reach (for now anyway).

But it’s a different story for the other big four banks. The National Australia Bank Ltd (ASX: NAB) share price is sitting at $22.47 today after rising more than 15% over the past month. But that’s still 8.5% below where NAB shares were on 2 January, and more than 18% off their February highs. It’s a similar story with Australia and New Zeland Banking Group Ltd (ASX: ANZ) shares.

But Westpac Banking Corp (ASX: WBC) is arguably the ASX bank that has faired the worst. The Westpac share price is today asking $19.79 after climbing 14% since 4 November. But Westpac is still more than 18% below where it was at the start of 2020, and more than 23% off its February highs.

ASX bank dividends to make a return?

One possible explanation for ASX bank shares being sold off could be due to the dividends they are paying in 2020 and beyond (or lack thereof). ASX banking shares have always had a reputation as income giants on the ASX 200, typically offering grossed-up yields between 5% and 8% in any given year.

But 2020 has seen dividends from this sector dry up considerably. Take Westpac. It didn’t even pay an interim dividend in 2020 for the first time in at least three decades. And its final dividend for 2020, to be paid on 18 December, will come in at 31 cents per share, down from 80 cents per share in 2019.

But that could shift in 2021.

Part of the reason banking dividends have been so scarce in 2020 is because of APRA (the Australian Prudential Regulatory Authority). Back in May, APRA actually told (‘guided’ was the official term) the ASX banks to keep their dividends low for the sake of stability in the financial sector. As part of this ‘guidance’, APRA ‘suggested’ banks keep their payout ratios below 50% of earnings.

Dividend mana from APRA

But according to reporting in the Australian Financial Review (AFR) yesterday, APRA might be about to loosen this guidance. The AFR reports that APRA chair, Wayne Byres, speaking at the AFR’s Banking and Wealth Summit, told participants APRA will “soon revise the 50 per cent earnings cap on dividend payouts to shareholders, indicating this may be relaxed”.

The AFR quotes Mr. Byres as stating the following:

On the whole, I think the outlook has improved, bank capital has certainly increased, the economic situation looks more positive…We don’t want to be complacent, but I think it is time we look at the issue [of the cap] again.

If that does come to pass, we could well see dividends from the big four banks tick up again in 2021 and beyond. If you were wondering why ASX banking shares have been so dramatically on the rise in November so far, you might have just found your answer.

More reading

• China is a much bigger threat to the ASX bull run than COVID
• Global fund managers are bullish on these 3 things
• Why the Aventus (ASX:AVN) share price is rising today
• ASX 200 down 0.3%: Altium FY 2021 guidance, Crown drops, insurance shares sink
• Can Magellan (ASX:MFG) prosper in a market dominated by Macquarie (ASX:MQG)?

Motley Fool contributor Sebastian Bowen owns shares of National Australia Bank 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 Sequoia Financial Group Ltd (ASX: SEQ) share price has jumped almost 5% in today’s trading following the financial services company’s annual general meeting (AGM). Sequoia shares are currently trading at 44 cents, up 4.76%.

What did Sequoia report today?

Sequoia  is a financial services company offering financial planning, stock broking, and accounting to both retail and wholesale clients. The company reported that it more than tripled its earnings in FY20.

It says that despite enormous changes in the industry post-Hayne Report (which resulted in large institutions abandoning the financial planning industry altogether), it remains bullish and has plans to add 600 advisers to its roster. 

Sequoia also reported that it expects to see revenue increase to above $100 million in FY21, operating profit to increase by 25% to $6 million, and that it is working towards increasing the dividend payout ratio from 25% to 65% over the next 4 years. The company says it is currently tracking ahead of this budget.

In today’s AGM announcement, Sequoia chief executive Garry Crole indicated he believes there will continue to be new entrants into the financial planning sector, however he thinks that a full recovery will not occur before 2024.

Major financial highlights

Sequoia announced the following metrics for FY20:

• revenue in FY20 of $84.5 million, an increase of almost 2% over 2019 results.
• earnings before interest, tax, depreciation, and amortisation (EBITDA) of $4.8 million, a significant increase of 336% 
• net profit after tax (NPAT) of $1.9 million, compared to a loss of $1 million in 2019
• a dividend of 40 cents, or 25% of NPAT. The company did not pay a dividend in 2019.

How has the Sequoia share price performed in 2020?

The Sequoia share price has had a tremendous year in 2020, almost doubling in value on the back of strong results. Its current share price of 44 cents gives it a market cap of $54 million.

More reading

• Why ASX bank share dividends might be surging soon
• Here’s why GUD (ASX:GUD) is acquiring this AMA (ASX:AMA) business for $70m
• China is a much bigger threat to the ASX bull run than COVID
• Another major shakeup for Unibail Rodamco Westfield (ASX:URW) shareholders
• Why the Regional Express (ASX:REX) share price is rising today

Motley Fool contributor Eddy Sunarto 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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The AMA Group Ltd (ASX: AMA) share price is pushing higher on Thursday after announcing the divestment of its ACAD business to GUD Holdings Limited (ASX: GUD).

At the time of writing, the AMA share price is up 2% to 84 cents, whereas the GUD share price is in a trading halt.

What was announced?

This morning the two companies revealed that they have entered into a $70 million agreement for AMA’s ACAD business, excluding the ACM Auto Parts and Fluiddrive businesses. This figure remains subject to customary purchase price adjustments and capex adjustments.

AMA revealed that its board has been reviewing its strategic objectives to determine its optimal focus.

And while it notes that the ACAD business is a strong well performing business, it was determined that a focus on the Panel Repairs sector would provide greater opportunities for investment and growth for shareholders.

AMA’s management advised that the proceeds of the sale will be used to retire debt and set it up for continued growth in its core Panel Repairs operations.

For GUD, it notes that the acquisition is in line with its growth strategy. This is particularly the case in respect to securing new customers and categories through disciplined acquisitions.

After funding costs, the acquired businesses are expected to make a positive contribution to GUD’s earnings. Management is forecasting the acquisition to be mid-single-digit pro forma FY 2021 earnings per share accretive, pre-synergies.

GUD’s Managing Director and Chief Executive Officer, Graeme Whickman, commented: “The acquisition of these businesses is highly complementary to GUD’s automotive business and provides strategic diversification across products and customer channels, along with increased exposure to fast growing pick-up truck and SUV vehicle segments.”

“We are excited by the opportunity to bring GUD’s strong customer focus and sales ethos to what are well managed and established businesses with impressive product development and manufacturing capabilities,” he added.

Equity raising.

In order to fund the deal, GUD has launched an equity raising which aims to raise a total of $70 million. This comprises a fully underwritten $55 million institutional placement and a non-underwritten $15 million share purchase plan.

The institutional placement has an underwritten floor price of $10.75 per share, with the final price to be determined via a bookbuild. This floor price represents a 9.1% discount to its last close price.

More reading

• These could be the next ASX stocks to unlock value by selling assets
• 5 things to watch on the ASX 200 on Tuesday
• 5 ASX 200 shares that just received share price upgrades

Motley Fool contributor James Mickleboro 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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ASX bulls have been hanging out for any piece of good news regarding a vaccine for COVID‐19, but it’s China should be keeping a wary eye out on.

Just as you think things couldn’t get any worse between Australia and our largest trading partner, the relationship just took a turn for the worse.

Prime Minister Scott Morrison defiantly stated that Australia won’t compromise on its sovereignty and security as China warned against making the Asian giant an enemy, reported Bloomberg.

China-Australia spat poses key risk for ASX investors

Australian business leaders who have been urging the Morrison government to tone down on the fiery rhetoric and offer gestures towards reconciliation will be disappointed.

The diplomatic chest beatings have not only gotten louder, but the relationship is likely to get worse before getting better.

The breakdown in Sino-Australia relations is putting the 43% S&P/ASX 200 Index (Index:^AXJO) bounce back from the COVID market meltdown in March at risk!

China is bigger than COVID

While its conceivable that the ASX can continue to climb even if it takes the world longer to get on top of the pandemic, it’s hard to imagine the bull run staying intact if China bans even more Aussie imports.

Chinese authorities have already moved to ban or restrict a range of Aussie goods entering that market. This includes copper, wine, barley, beef and timber, just to name a few.

The worry is that the black list will expand significantly and include iron ore. Not only is this Australia’s top export earner, China is really the only customer on the other side of the equation.

Brazil stepping up to the plate

This could come as Brazil’s exports of the commodity recovers from the COVID fallout. The rebound is already happening.

The latest data showed that Brazilian iron ore shipments increased by 64% week-on-week, or 7% year-on-year. This is the second highest level of the year of 8.1 million tonnes, according to UBS.

“Overall, Brazilian iron ore shipments have sequentially increased since the first quarter,” said the broker in a note issued on Monday.

“This explains the ongoing uptick in Chinese port inventories of Brazilian iron ore.”

ASX stocks at risk

Our mining giants like the BHP Group Ltd (ASX: BHP) share price and Rio Tinto Limited (ASX: RIO) share price have a lot of lose in the China-Australia tiff.

They aren’t the only ones with an over reliance on the Chinese giant. The Treasury Wine Estates Ltd (ASX: TWE) share price, A2 Milk Company Ltd (ASX: A2M) share price and Blackmores Limited (ASX: BKL) share price have a lot riding on China.

Hopefully both sides will find a much needed circuit breaker for worsening geopolitical tensions.

More reading

• Global fund managers are bullish on these 3 things
• Why a2 Milk, Crown, Immutep, & Suncorp shares are dropping lower
• Why the Aventus (ASX:AVN) share price is rising today
• ASX 200 down 0.3%: Altium FY 2021 guidance, Crown drops, insurance shares sink
• Can Magellan (ASX:MFG) prosper in a market dominated by Macquarie (ASX:MQG)?

Motley Fool contributor Brendon Lau owns shares of BHP Billiton Limited and Rio Tinto Ltd. Connect with me on Twitter @brenlau.

The Motley Fool Australia owns shares of and has recommended A2 Milk, Blackmores Limited, and Treasury Wine Estates 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.

The post China is a much bigger threat to the ASX bull run than COVID appeared first on Motley Fool Australia.

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ASX bulls have been hanging out for any piece of good news regarding a vaccine for COVID‐19, but it’s China should be keeping a wary eye out on.

Just as you think things couldn’t get any worse between Australia and our largest trading partner, the relationship just took a turn for the worse.

Prime Minister Scott Morrison defiantly stated that Australia won’t compromise on its sovereignty and security as China warned against making the Asian giant an enemy, reported Bloomberg.

China-Australia spat poses key risk for ASX investors

Australian business leaders who have been urging the Morrison government to tone down on the fiery rhetoric and offer gestures towards reconciliation will be disappointed.

The diplomatic chest beatings have not only gotten louder, but the relationship is likely to get worse before getting better.

The breakdown in Sino-Australia relations is putting the 43% S&P/ASX 200 Index (Index:^AXJO) bounce back from the COVID market meltdown in March at risk!

China is bigger than COVID

While its conceivable that the ASX can continue to climb even if it takes the world longer to get on top of the pandemic, it’s hard to imagine the bull run staying intact if China bans even more Aussie imports.

Chinese authorities have already moved to ban or restrict a range of Aussie goods entering that market. This includes copper, wine, barley, beef and timber, just to name a few.

The worry is that the black list will expand significantly and include iron ore. Not only is this Australia’s top export earner, China is really the only customer on the other side of the equation.

Brazil stepping up to the plate

This could come as Brazil’s exports of the commodity recovers from the COVID fallout. The rebound is already happening.

The latest data showed that Brazilian iron ore shipments increased by 64% week-on-week, or 7% year-on-year. This is the second highest level of the year of 8.1 million tonnes, according to UBS.

“Overall, Brazilian iron ore shipments have sequentially increased since the first quarter,” said the broker in a note issued on Monday.

“This explains the ongoing uptick in Chinese port inventories of Brazilian iron ore.”

ASX stocks at risk

Our mining giants like the BHP Group Ltd (ASX: BHP) share price and Rio Tinto Limited (ASX: RIO) share price have a lot of lose in the China-Australia tiff.

They aren’t the only ones with an over reliance on the Chinese giant. The Treasury Wine Estates Ltd (ASX: TWE) share price, A2 Milk Company Ltd (ASX: A2M) share price and Blackmores Limited (ASX: BKL) share price have a lot riding on China.

Hopefully both sides will find a much needed circuit breaker for worsening geopolitical tensions.

More reading

• Global fund managers are bullish on these 3 things
• Why a2 Milk, Crown, Immutep, & Suncorp shares are dropping lower
• Why the Aventus (ASX:AVN) share price is rising today
• ASX 200 down 0.3%: Altium FY 2021 guidance, Crown drops, insurance shares sink
• Can Magellan (ASX:MFG) prosper in a market dominated by Macquarie (ASX:MQG)?

Motley Fool contributor Brendon Lau owns shares of BHP Billiton Limited and Rio Tinto Ltd. Connect with me on Twitter @brenlau.

The Motley Fool Australia owns shares of and has recommended A2 Milk, Blackmores Limited, and Treasury Wine Estates 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.

The post China is a much bigger threat to the ASX bull run than COVID appeared first on Motley Fool Australia.

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It’s been a turbulent year for Unibail Rodamco Westfield (ASX: URW) shareholders. At the end of October, the Unibail share price was down 74% for the 2020 calendar year. That’s rough, even for a retail landlord operating in today’s pandemic battered times.

Year to date, however, the Unibail share price is now ‘only’ down 59%. This comes after a major share price rally last week saw shares gain 62% so far in November.

Much of that rally was owed to shareholders voting to reject the supervisory board’s 3.5 billion euro (AU$5.7 billion) capital raising, part of the company’s ‘reset’ plan to pay off its burdensome debt load.

The defeat of the capital raising proposal saw chair of the board, Colin Dyer, resign earlier this week. Leon Bressler, one of the activist investors stringently opposed to the capital raise, was appointed as the new chair.

With so much managerial shakeup, Christophe Cuvillier, Unibail’s CEO, was left in a tenuous position.

Indeed, in an announcement released today, Unibail confirmed that Cuvillier has been replaced by Jean-Marie Tritant, with the transition to take place on 1 January 2021.

What did Unibail’s management say?

Commenting on the shakeup of CEOs, Leon Bressler said:

A transition phase is beginning for URW. I am delighted that Christophe Cuvillier has agreed to lead it for the Group. His long experience as CEO, particularly during the ongoing health and economic crisis, will be very valuable. I am convinced that Jean-Marie will lead the company with great success.

Jean-Marie Tritant added:

This appointment is for me an immense honour and I fully appreciate the trust that has been placed in me. URW is an exceptional company that I joined more than 20 years ago and is a leader in its sector. I know that I can count on the Group’s teams, their talent and their energy. Thanks to them, we will be able to build on the Group’s future successes.

I would like to commend the tireless work accomplished by Christophe Cuvillier at the helm of URW since 2013 and his commitment to ensure a smooth transition as from today.

The Unibail share price is down 1.12% in early afternoon trading.

More reading

• Why the Unibail Rodamco Westfield (ASX:URW) share price is up 63% in 5 days
• ASX 200 up 0.35%: Moderna vaccine success, Afterpay update, Westpac upgraded
• ASX 200 up 1.2%: Afterpay ASIC response, Elders result, CSL vaccine facility
• ASX 200 Weekly Wrap: ASX continues to hit post-COVID highs
• These were the best performing ASX 200 shares last week

Motley Fool contributor Bernd Struben 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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The Regional Express Holdings Ltd (ASX: REX) share price is on the rise today after the company announced it has signed an agreement with PAG Regulus Holdings on funding for its domestic operations. At the time of writing, the Regional Express share price is trading at $1.51, up 2.7%.

What’s moving the Rex share price?

The Rex share price is edging higher on the company’s news that Asia-Pacific investment firm, PAG, will provide funds of up to $150 million. The injection of capital will support the launch of Regional Express’ domestic jet operations scheduled to commence on 1 March.

The investment will comprise of first ranking senior secured convertible notes. An initial funding tranche of $50 million will be drawn down towards early January 2021. Furthermore, the remaining balance will be available over the following 3 years.

Subject to shareholder approval, Regional Express will hold a vote on the deal at its AGM at the start of the new year. In addition, the Foreign Investment Review Board will also need to approve the proposed funding.

If permitted, and upon completion, PAG will nominate two of its directors to the Regional Express board.

What did management say?

Regional Express chair, Mr Lim Kim Hai, spoke about the partnership, saying:

PAG is a well-respected and highly successful investment group which manages more than USD40 billion on behalf of major global institutional investors.

Preparations for our domestic operations are proceeding to plan with our first Boeing 737 800NG aircraft delivered on 5 November 2020. Our crew will carry out training on the aircraft over the next 3 weeks before the CASA proving flight on 2 December 2020. We anticipate CASA approval shortly after. Five other similar aircraft will be delivered from next month to March 2021.

Once the initial services are well established, we aim to progressively grow our fleet to cover all the major cities in Australia.

Adding to Mr Hai’s comments, PAG chair and CEO, Mr Weijan Shan said:

We have been impressed with Rex’s established track record in regional aviation in Australia. Rex’s plan to provide Australia’s major cities with affordable and high-quality air travel is consistent with their disciplined and focused approach over the past 18 years. PAG is excited to partner with Rex on this expansion.

What’s been happening with the Regional Express share price

The Regional Express share price has come back strongly after being hit hard by COVID-19 lockdowns. Shares in the airline dropped to as low as 37 cents in March, before recovering to levels seen in 2019.

Regional Express considers itself as a competitive passenger airline for domestic routes, going up against Qantas Airways Limited‘s (ASX: QAN) QantasLink and Jetstar as well as Virgin Australia Holdings Ltd (ASX: VAH).

It’s worth noting that the Regional Express share price is now just 10% below its all-time high of $1.68 which it achieved back in October 2018.

More reading

• Global fund managers are bullish on these 3 things
• It’s official: Like it or not, millions will own Tesla stock soon
• SEEK (ASX:SEK) share price flat despite FY 2021 guidance upgrade
• Get real: 2 ASX dividend shares to boost your income stream
• Why a2 Milk, Crown, Immutep, & Suncorp shares are dropping lower

Motley Fool contributor Aaron Teboneras 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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With the S&P/ASX 200 Index (ASX: XJO) going above 6,500 points this week for the first time since February, ASX investors certainly have something to be happy about. The ASX 200 is now well and truly out of the ‘rut’ it was stuck in between June and October. By ‘rut’, I’m referring to the fact that the ASX 200 seemed to never get too far above, or below, the 6,000 point threshold for those 4 months.

Now the ASX 200 is seemingly pushing to greater heights this week. So I’m sure many an investor is wondering ‘where to next?’ for ASX shares, given we’re barrelling towards a new year.

Where are fundies investing for 2021?

Well, reporting in the Australian Financial Review (AFR) today sheds some light on this question. The AFR is covering the Bank of America’s monthly survey of more than 200 global fund managers (with a collective $784 billion in assets under management) for their views on how to position a share portfolio going forward. And the view is reportedly almost unanimous: “It’s time to go long or go home”.

The AFR reports that the fundies aren’t too concerned over the recent ‘second/third waves’ of coronavirus cases around the world. Although they do note it’s a risk. Instead, managers have “pulled forward their expectations for a credible vaccine to be announced from next February to next January. And are piling into trades that will benefit from the reopening of economies”. Bank of America says the “US election outcome and the announcement of promising results from vaccine trials” are behind the “switch in the psyche of investors”.

And that is resulting in cash positions being whittled to “15-year lows”. Where is this cash going? According to the report, there are 3 areas which are overwhelmingly popular amongst the fund managers: emerging markets, oil, and the S&P 500 Index (INDEXSP: .INX).

A triumvirate of opportunity?

Emerging markets refer to the economies (and stock exchanges) of countries outside the ‘advanced economies’ of the world. Specifically such as the United States, United Kingdom, Europe, Japan, Canada and Australia. As an example, a typical exchange-traded fund (ETF) covering emerging markets is the iShares MSCI Emerging Markets ETF (ASX: IEM). This ETF is weighted 40.56% to China, 12.67% to Taiwan, 12.52% to South Korea, 8% to India and 4.88% to Brazil.

Oil is an interesting choice as well. Oil prices and companies have been decimated in 2020 as a result of the pandemic. Many are sitting at multi-year share price lows. Take Woodside Petroleum Ltd (ASX: WPL). It’s currently trading at $21.77 after falling as low as $14.93 earlier in the year. Before 2020, you’d have to go back to 2005 to find similar pricing. It’s a similar story with global oil giants like Exxon Mobil Corporation (NYSE: XOM).

Finally, the S&P 500 is the flagship index for US shares. Thus, a bet on the S&P 500 could be construed as a bet on the US shares, especially the larger companies like Amazon.com Inc (NASDAQ: AMZN), Alphabet Inc (NASDAQ: GOOG)(NASDAQ: GOOGL) and Apple Inc (NASDAQ: AAPL).

More reading

• Why the Aventus (ASX:AVN) share price is rising today
• ASX 200 down 0.3%: Altium FY 2021 guidance, Crown drops, insurance shares sink
• 5 things to watch on the ASX 200 on Thursday
• ASX 200 rises again on Wednesday
• 2 ASX shares making all-time highs today

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Sebastian Bowen owns shares of Alphabet (A shares). The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon, and Apple and recommends the following options: short January 2022 $1940 calls on Amazon and long January 2022 $1920 calls on Amazon. The Motley Fool Australia has recommended Alphabet (A shares), Alphabet (C shares), Amazon, and Apple. 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.

A lot of people have strong feelings about electric vehicle pioneer Tesla Inc (NASDAQ: TSLA), both as a company and as an investment. The Elon Musk-led company has generated plenty of controversy over its history, but its skyrocketing share price has left its automaker peers in the dust.

The stock’s amazing run has delivered 550% returns in just the past year, and more than 9,500% gains in Tesla’s roughly 10 years as a publicly traded company. That has resulted in a share price that many investors think is far too high to pay.

Yet even if you believe that Tesla isn’t a buy right now, you might still end up acquiring some of its stock soon. That’s because the company that manages one of the most-followed stock indexes in the world just decided to add Tesla to it.

Tesla is joining the S&P 500

S&P Dow Jones Indices is the entity behind the S&P 500 Index (INDEXSP: .INX). The popular benchmark contains roughly 500 of the largest and most influential US companies, but its membership is not static. S&P Dow Jones often adds new components and removes old ones to reflect changing factors like market capitalisation, takeover activity, and other corporate events.

For a long time, Tesla wasn’t eligible to be in the S&P 500 despite its large market cap. Many of the formal requirements for inclusion, such as a minimum share price and adequate share float, weren’t a problem for the electric automaker. The requirement that it took the longest for Tesla to meet was that it had to be profitable for four consecutive quarters and over a 12-month period.

Yet even when that happened earlier in 2020, S&P Dow Jones didn’t immediately pull the trigger. Some pundits cited issues with the quality of Tesla’s profits, boosted as they are by regulatory credits. Others pointed to the complexity of adding a company to the S&P 500 that was already as large as Tesla was.

S&P Dow Jones ended the speculation on Monday when it said it would add Tesla to the S&P 500, effective 21 December.

A couple of unusual things about Tesla’s addition to the S&P 500

However, the announcement wasn’t typical in a couple of respects. First, S&P Dow Jones didn’t announce which company Tesla will replace. It’s putting that decision off until we’re closer to the late-December rebalance date.

Also, S&P Dow Jones reached out to the investment community for guidance on precisely how to add Tesla. Given the company’s size – its market cap is above $420 billion – this move has the potential to cause a massive disruption to index-related trading. The index manager suggested the possibility of adding Tesla incrementally, possibly incorporating two separate dates on which portions of the final allocation would get put in the S&P 500.

You would’ve been better off buying earlier

The irony here is that index-fund investors who scoffed at buying Tesla earlier in 2020 are going to end up paying much higher prices for the shares. At the beginning of the year, you could’ve bought Tesla shares at a split-adjusted price of less than $100. As recently as June, Tesla stock was trading under $200 per share. But on Monday, Tesla closed above $400 per share – and it jumped more than $50 per share on the S&P 500 news.

However, index funds have no choice. If they want to track the S&P 500, they will need to own Tesla shares – regardless of the premium they’ll be paying to acquire them.

It’s not the end of the world

This isn’t the first time investors have had to accept index-fund additions they didn’t like. It happened with Facebook (NASDAQ: FB), but in hindsight, index investors have to be pleased with the returns the social media giant has generated for their funds.

Moreover, even at Tesla’s massive current size, its impact on your S&P 500 index fund won’t be all that big. Tesla will likely end up with a weighting of slightly over 1% in most of those funds. That will make it the biggest new addition ever – but it still doesn’t amount to a huge exposure to the automaker’s stock.

Tesla will continue to generate controversy, and it’s highly possible that the S&P addition will be the next event that triggers a massive feeding frenzy for the electric vehicle pioneer’s shares. In the end, though, what will matter is whether Tesla can convert on its amazing potential and expand into a business that justifies its industry-leading valuation.

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

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Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool’s board of directors. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Facebook and Tesla. Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Facebook. 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.

The post It’s official: Like it or not, millions will own Tesla stock soon appeared first on Motley Fool Australia.

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

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