Why Tutor Perini Stock Trounced the Market on Tuesday
Key Points
The construction specialist will be a component of the S&P SmallCap 600 index later this week.
It replaces the outgoing Krystal Biotech.
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Tutor Perini (NYSE: TPC) has been tapped for inclusion on an index run by a high-profile financial information and analysis company, and investors were there for it on Tuesday. Following the news, they eagerly snapped up shares of the construction company, leaving it with a nearly 8% gain that trading session.
Graduation day
Just after market close on Monday, S&P Global's S&P Dow Jones Indices announced modifications to its S&P MidCap 400 and S&P SmallCap 600 indexes.
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The one that affected Tutor Perini was the looming departure of a fellow construction stock, Taylor Morrison Home, from the S&P MidCap 400. Taylor Morrison is being acquired by the once Warren Buffett-led Berkshire Hathaway and will no longer be an independent company.
Taylor Morrison's place in that index will be taken by current S&P SmallCap 600 constituent Krystal Biotech (NASDAQ: KRYS). In turn, Tutor Perini will supplant Krystal Biotech in that lineup.
These changes will take effect prior to market open this Friday, July 24.
Indexes and effects
What we're witnessing is mostly the vaunted "index effect," in other words, the market's usual knee-jerk reaction to a stock either joining an index or "graduating" to one comprised of titles with higher market caps. In either case, the affected stock instantly becomes a target of index funds obligated to stuff their portfolios with index constituents.
I should stress that this tends to have little, if any, effect on a company's fundamentals (although it's excellent for some free publicity). Given that, I'd maybe wait for Tutor Perini stock to cool from this news if I were interested in buying it.
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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway, Krystal Biotech, and S&P Global. The Motley Fool has a disclosure policy.
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