One of the lesser-known financial sector stocks was one of its strongest performers on Monday. McGrath RentCorp (NASDAQ:MGRC), a company that specializes in modular building rentals and portable storage solutions, was surging nearly 10% higher in late-session trading on news its stock is being added to a prominent equity index.
Re-indexed
After market close Friday, S&P Dow Jones Indices, the company that administers the high-profile S&P family of indexes, announced a series of changes stemming from Kimberly-Clark‘s (NASDAQ:KMB) acquisition of Kenvue (NYSE:KVUE).
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Kenvue is currently a component of the S&P 500 index; since Kimberly-Clark will absorb the company if the acquisition goes through, it needs to be replaced with another stock. S&P Dow Jones Indices announced that it will be tech company Okta (NASDAQ:OKTA).
Okta is currently a component of the S&P MidCap 400 index, so it’s being replaced by current S&P SmallCap 600 index constituent Glaukos (NYSE:GKOS). Finally, McGrath RentCorp will be added to the S&P SmallCap 600 to replace Glaukos.
All changes will take effect before market open this Wednesday, Nov. 4.
A bigger target
While it’s important to keep in mind that joining an index makes little or no difference to the operations of a company, it matters for its stock. The numerous index funds that constantly trawl the S&P SmallCap 600 and other market gauges tend to boost trading volume for component stocks. However, this “index effect” is typically short-lived, so I don’t think investors should transact in McGrath RentCorp stock solely on that basis.
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