Two Stocks on the Brink of Joining the S&P 500

Getting added to the S&P 500 Index (SPX) is a big deal for any equity. Fund managers who track the S&P 500 will have to buy the stock to stay on target. All of those buy orders can raise the stock price higher and bring more attention to the equity. Buying a stock before it joins the S&P 500 can set an investor up for a nice payday. Some companies that fit this category have great potential to outperform the market, and some already have a history of exceeding market returns.

The S&P 500 Index isn’t open to every company. The index has several standards for inclusion, but these are the core requirements:

Investors can narrow their search with these parameters to find the next stocks that may join the S&P 500. I have identified Super Micro Computer (NASDAQ:SMCI) and e.l.f. Beauty (NYSE:ELF) as two promising stocks that can be added to the S&P 500 this year. I’m bullish on both of them.

The Bull Case for Super Micro Computer

Super Micro’s inclusion in the S&P 500 Index feels inevitable. The corporation has capitalized on artificial intelligence demand by offering servers that can handle the intense workloads of AI chips and tools. The stock has trounced the market with a 145% year-to-date gain, a 675% gain over the past year, and a 4,324% gain over the past five years.

Super Micro reported $640 million in net income in Fiscal 2023 and continues to deliver profitable quarters. Supermicro also fulfills the market cap requirement with a healthy margin of safety. The stock currently trades at a $39 billion market cap.

Super Micro’s latest earnings report and guidance suggest there’s more room for the stock to run. For instance, revenue growth came in at 103% year-over-year in the second quarter of Fiscal 2024, and the midpoint of SMCI’s raised guidance ($3.7-4.1 billion in sales expected in Fiscal Q3) suggests revenue will more than triple year-over-year in Q3.

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The firm’s continued growth will beget more growth once it gets added to the S&P…