Moderna (NASDAQ:MRNA) is now officially a member of the S&P 500. However, there are frequent changes in the major market index. In this Motley Fool Live video recorded on July 21, 2021, healthcare and cannabis bureau editor-analyst Olivia Zitkus and Motley Fool contributor Keith Speights discuss whether or not Moderna’s tenure on the S&P 500 index will be short-lived.
Olivia Zitkus: Let’s turn to another vaccine maker. Let’s go over to Moderna, which is now officially, I think today, a member of the S&P 500 Index. And this index changes around quite a bit. Companies can get bumped off if their market caps declined too much or if they’re acquired.
Moderna replaced Alexion Pharmaceuticals (NASDAQ:ALXN), which is being acquired by AstraZeneca (NASDAQ:AZN). Do you think that Moderna’s spot on the S&P 500 Index could be short-lived or is this close to forever? What are your thoughts here?
Keith Speights: [laughs] Good question. You’re right, the S&P 500 Index has a lot of change, very frequent. The index, by the way, includes the biggest 500 companies that are traded on U.S. stock exchanges. And the frequent changes to the index come about either from companies losing market cap and no longer being one of the 500 biggest companies. Or maybe others gain market cap and end up bumping companies off the list, or through acquisitions.
In this case, I don’t think Moderna is in any danger of losing so much market cap that it drops out of the index. I checked, Olivia: There are around 30 or so companies right now in the S&P 500 Index that have market caps of less than $10 billion. Now, I wouldn’t be surprised if Moderna’s market cap declines. But I can’t imagine — I guess I could imagine — but I don’t envision a scenario where Moderna will have a market cap of less than $10 billion anytime soon, if ever.
The company is well over a $120 billion market cap right now, I think that could go down some, but I don’t think it’s going to go down nearly enough to displace Moderna out of the S&P 500 Index. I think a more plausible possibility is for Moderna to be acquired. Now, let me just say, I think that’s an unlikely scenario as well. I just think it’s more plausible than Moderna’s market cap dropping so much that it gets bumped out of the S&P 500.
Look, for one thing, there aren’t that many companies around that could afford to buy Moderna at its current price. The ones that maybe could afford to buy Moderna, let’s say, for example, Johnson & Johnson (NYSE:JNJ), the biggest healthcare company in the world. It could afford to buy Moderna, if it wanted to. I just don’t think it has a compelling reason to do so. I don’t think any other big drugmakers out there have a compelling reason to make an acquisition of Moderna at its current valuations. I don’t see that happening.
The bottom line in my view is I think Moderna is going to be a member of the S&P 500 Index for a very long time to come. We’re going to see other companies get bumped off the list, others added. But I think Moderna has staying power.
Zitkus: I think that sounds about right, Keith. At a $127 billion market cap that would be a difficult one to absorb. Like you mentioned, a company like J&J already has Janssen or arms dedicated to very similar efforts as Moderna. Janssen is what produced the J&J vaccine. That’d be a tricky one to bring into the fold. The stock was up 10 percent on July 16 and is up 30 percent over the past five days on probably of combination of that news of the S&P 500 inclusion and also just renewed COVID concern. So it’s had an interesting week.
The COVID-19 vaccine, at least in this moment, is still the driver of the success. Not a tradition on an index. You’ve got to think that like these indices were already tracking Moderna, lots of important ETFs and industries were already tracking it.
Speights: Absolutely. It was not a surprise whatsoever to mutual funds and ETFs that Moderna was going to be named to the S&P 500 Index. They knew the company was big enough by far even before the last few weeks when the stock shot up even more. Moderna was the default candidate to be added to the S&P 500.
Zitkus: Yeah, totally. I love to comment from analyst at Jefferies (NYSE: JEF) this past week referred to Moderna as the Tesla of biotech. Of course, you might feel differently about that statement depending on how you feel about Tesla (NASDAQ:TSLA). But Moderna has definitely proven itself as a maverick in the space over the past 12-16 months. I’m really excited for the next year and to see what comes after the COVID-19 vaccine.
Speights: I totally agree. It will be fun to watch.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
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