General Motors is rejoining the club, the rarified air of the Standard & Poor's
It's a dose of good news not only for GM's comeback story, but for stockholders who already are seeing a stock price bump from the milestone.
Standard & Poor's announced that GM, which reigned as the biggest company in the index from 1927 to 1958, will be back in after the close of trading on Thursday. The news is sure to buoy the mood at GM's stockholders' meeting the same day. And it will mark another milestone since GM filed for bankruptcy reorganization in 2009 and, as a result, was kicked out of the S&P 500 slot it had held since the index began in 1925.
The Detroit-based global automaker will rejoin at 130 among the 500 companies on the list ranked by the value of their shares available for trading, or float. It replaces Heinz, which is out because of its acquisition by Berkshire Hathaway. Financial services provider American International Group, which, like GM, received government assistance to stay in business during the recession, also will rejoin.
GM shares closed at $34.96 Tuesday, up 1.6%. In the past year, it has ranged from $18.72 to $35.48.
"The GM team has been working very hard to earn the business of customers around the world and to win the confidence of investors, and rejoining the S&P 500 shows we're very much on track," said GM CEO Dan Akerson in a statement.
Companies generally see about a 5% bump in stock price when they join the index, says Howard Silverblatt, senior index analyst for S&P Dow Jones Indices. Inclusion isn't automatic for growing companies. They have to be invited, since the index is intended as a microcosm of the stock market.
In a note to investors, Barclays analyst Brian Johnson says GM stock can only benefit, because S&P index funds and others are required to buy companies on the list. He estimates a net buy of 87 million shares of GM.
A price bump also could lead the U.S. Treasury, which still owns about 242 million shares of GM stock, to speed its exit, which it has said it will finish by early next year. The government holds about 16% of shares, down from the more than 60% equity stake it took as part of its restructuring of the automaker. Johnson says Treasury sales have amounted to 9% to 11% of trading volume.
More selling normally would be a negative for a stock, but for GM, government selling could be a positive, since investors have been nervous about the timing and form of the U.S. ownership reduction. It "could provide a boost for the stock, as investors will have greater comfort that the Treasury exit is being accelerated," Johnson writes.
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