Tesla (NASDAQ:TSLA) is set to join the S&P 500 stocks in December, officially earning its title as a blue-chip company. This is a huge milestone for the electric car maker as its inclusion in the index will only add to the company’s impressive valuation.
The S&P 500 is the most widely-followed index in the American stock market and has $11.2 trillion worth of assets. Investors who track the index added to the demand for Tesla stock pushing its value up by 8.2%. Tesla is up by 410% this year.
However, with the Tesla S&P 500 buzz behind us, many investors are now looking to stocks that will qualify for inclusion next. There are a number of companies that fit the criteria and it’s only a matter of time before they earn this mark of corporate dominance.
Here are three companies that will be strong contenders.
S&P 500 Stocks: Zoom Video Communications (ZM)
In the era of remote work, Zoom is now a way of life for many. From classrooms to work and socially distanced birthdays, the video conferencing tool has become a go-to medium. This resulted in a massive rally for the stock which is up 660% this year and has a 30-fold increase in usage.
However, with the arrival of the vaccine, many believe that this pandemic tech darling will soon see the end of the road. But a wide profit margin and a solid bottom line will keep Zoom in the limelight for many years.
Thanks to its claim to fame this year, Zoom has all the makings for inclusion in the S&P 500. In its previous quarter, Zoom posted some impressive results with a 329% increase in revenue growth in Q3. As of this writing, the video conferencing tool has a market capitalization of $112.6 billion. Adding to this, Zoom also posted a positive net income in the last six quarters, which is a major criterion for inclusion in the S&P 500.
Even if Zoom stock sees a short-term pullback in a post-Covid world, the company still has a lot of potential for growth. This makes the company a strong contender for becoming an S&P 500 stock in the near future.
Lululemon Athletica (LULU)
The pandemic stock rally isn’t just limited to the tech sector. Athleisure apparel giant Lululemon had a strong run in 2020 as people turned to the company for remote workwear.
Although its physical stores remained closed for much of this year, Lululemon’s strong digital footprint allowed them to post some strong results. Chip Wilson, the company’s CEO, gave his vote of confidence, telling Forbes that Lululemon will surpass Adidas (OTCMKTS:ADDYY) in five years.
Given the athleisure giant’s incredible performance this year, this statement is not totally unfounded. Lululemon is currently worth $47 billion and earned $902.9 million in its last quarter. The company also plans to double its men’s digital business and quadruple international business by 2023. Nearly two-thirds of its stores are currently open which will also add to its revenue numbers. Lululemon is a huge player in the athleisure trend which is expected to blow up in the coming years.
The company’s position in the comfort apparel industry and strong bottom line make it a front-runner for inclusion in the S&P 500. Lululemon doesn’t look like it’s slowing down anytime soon, so keep your eyes peeled for this stock’s performance.
Another tech giant that fits the S&P 500 blueprint is Square. The mobile payments company had a strong 2020 with its stock up 200% year-to-date. This rally can be attributed to its subsidiary Cash App which currently has 30 million users.
Cash App’s rise to dominance is due to the pandemic digital payments trend. The app serves as a virtual bank, allowing customers to send, receive and deposit money. In addition, the app was approved to provide loans to small businesses impacted by the pandemic.
Square’s impressive performance this year means that it’s only a matter of time before it joins the S&P 500. The company did see a short-term pullback in Q1 of 2020, but was back to generating returns in Q3. This means Square will need to stabilize its earnings in 2021 before it meets the minimum qualification for inclusion in the index.
Nevertheless, with a market cap of more than $95 billion, the chances for this stock joining the S&P 500 are undeniably high.
On the date of publication, Divya Premkumar did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Divya Premkumar has a finance degree from the University of Houston, Texas. She is a financial writer and analyst who has written stories on various financial topics from investing to personal finance. Divya has been writing for InvestorPlace since 2020.