CITY (CNNfn) - Shares of Yahoo! soared in after-hours trading Tuesday, after Standard & Poor’s announced that it would add the Web portal to the S&P 500 index.|
The stock, which slid 13-3/8 to 212-3/4 in regular trading, added 22-1/16 to 234-13/16 after the bell on news that it would be listed on the closely mirrored S&P 500, which tracks companies across a range of industries.
Effective at the close of trading Dec. 7, Yahoo! (YHOO) will replace transportation service provider Laidlaw (LDW), which is being removed for lack of representation, Standard & Poor’s said.
Yahoo! has its roots as one of the Internet’s first search engines, but has since become one of the most popular information, communication and shopping services on the Web.
It also has become one of the most popular stocks among technology investors. Yahoo! shares currently trade at a price-to-earnings ratio of more than 900, and the company’s total market capitalization is more than $56 billion.
Despite those lofty statistics, Yahoo! could be propelled even higher by taking its place among the S&P 500, according to J.P. Morgan Securities Inc. analyst Susan Walker White in New York.
Demand for a stock typically increases after it is included in the S&P 500 because many institutional funds use it as a benchmark and will buy the stock in order to match or exceed the index’s performance.
When Internet bellwether America Online (AOL) was added to the index early this year, it too was very highly valued but was nevertheless boosted by the listing, she said.
"You can go back and look at what happened to AOL when it was added to the index last December,” she said. "It had a real run.
"This puts Yahoo! into a new class of investors. Now, anyone who has an index fund will be buying Yahoo! as well.”
Looking ahead, White said Yahoo! will continue to benefit from the growing popularity of its online shopping services, which on the Friday after Thanksgiving was tracking at more than five times its level last year.
"They’re very well positioned to continue to get a large percentage of the Web shoppers, so I have a very positive view on the company,” White said.
Executives from Yahoo! were not immediately available for comment.