News of fresh inclusion on a well-known stock index was the catalyst sending shares of oil, gas, and natural gas liquids (NGL) conglomerate Crescent Energy(NYSE: CRGY) higher over the past few trading days. As of market close on Thursday, according to data compiled by S&P Global Market Intelligence, the company's stock had risen by nearly 12% week-to-date.
Index advancement
On Tuesday, S&P Dow Jones announced that Crescent Energy would be to the newest component stock of its S&P SmallCap 600® index. It is replacing business consultancy Perficient in the lineup, as that company is being acquired by investment firm EQT Group in a deal with an enterprise value of roughly $3 billion.
The switch is scheduled to take effect today.
Like many equity indexes, the S&P SmallCap 600® is designed to track a clutch of stocks -- 600 in this case -- that are roughly similar in terms of their market caps. Since that figure can balloon higher or plummet lower on company developments, it's common for index owners to adjust their basket of component stocks accordingly, and constantly.
Managing expectations
Buyers should beware in instances like this. The "index effect," is real enough, as a stock wins free publicity by advancing to a prominent exchange; it also lands on the radar of the large number of index funds trawling for suitable investments to add to their portfolios. However that's usually only a (very) short-term sugar rush, as the market adjusts to the change in index composition. While this week's pop for Crescent Energy was surely exciting, we shouldn't expect it to last.
However, Crescent is certainly worth considering as an investment for those looking for companies in its sector, as it's a somewhat offbeat operator concentrating on acquisitions rather than direct development of resources. The stock began trading in late 2021 after a merger and is down 25% since then.
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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool recommends Perficient. The Motley Fool has a disclosure policy.
