Tesla Motors Inc (TSLA) Finally Peaking on Nasdaq-100 Inclusion

Technically the Nasdaq doesn’t have any choice other than to replace Oracle, considering it is moving to the NYSE. With the stock trading below 10 times forward earnings, it sure makes the index less attractive, adding the very expensive and volatile Tesla Motors Inc (NASDAQ:TSLA) after massive gains. Also, Oracle isn’t down the drastic 30% or 40% as with normal Nasdaq-100 removals so investors don’t get the fire sale stock to buy either.

A prime example from the December 24, 2012 rebalancing that backs the Schaeffer research was the addition of Equinix Inc (NASDAQ:EQIX) and removal of Netflix, Inc. (NASDAQ:NFLX). At the time, the data center stock of Equinix was on a hot streak while the streaming video of Netflix had hit a major roadblock.

Equinix Inc (NASDAQ:EQIX) had surged roughly 150% in the previous 18 months while Netflix, Inc. (NASDAQ:NFLX) had plunged a similar amount. After roughly six months in the updated index, the stocks are back to roughly equal gains of over 100% in the last two years. Naturally every example isn’t as drastic as this one, but it is a great example of why investors will do well to make the opposite move of a major index.

EQIX Total Return Price data by YCharts

Bottom line

Detailed analysis and even common sense suggest that buying a stock added to a major index is a recipe for a disaster in a portfolio. The Equinix Inc (NASDAQ:EQIX) and Netflix, Inc. (NASDAQ:NFLX) examples are prime reasons why investors shouldn’t rush into Tesla Motors Inc (NASDAQ:TSLA) now. On top of history suggesting the Nasdaq-100 inclusion is not the time to load up on a stock, the fundamentals aren’t actually improving for the company. Investors continue to look into the distant future and ignore the obvious declines in real numbers.

Mark Holder and Stone Fox Capital Advisors, LLC have no positions in any stocks mentioned. The Motley Fool owns shares of Oracle.. Mark is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

The article Tesla Finally Peaking on Nasdaq-100 Inclusion originally appeared on Fool.com is written by Mark Holder.

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