Why McGrath RentCorp Stock Was Bumping Higher Today

The Motley Fool · 11/02 20:27

Key Points

  • It will join this lineup on Wednesday before the start of trading.

  • This is one of a series of adjustments made by the company that manages the index.

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.

Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Okta. The Motley Fool recommends Kenvue and McGrath RentCorp. The Motley Fool has a disclosure policy.