According to Standard and Poor's methodology, "initial public offerings should be seasoned for 6 to 12 months before being considered for addition to an index." Facebook (FB) just celebrated its six-month birthday as a public company a little over two weeks ago.
While the company's stock has had a rocky debut, with shares still down almost 30% below the IPO price of $38, there's not much preventing it from being added to the benchmark index.
"I think it's a near certainty that we'll see Facebook as part of the S&P 500," said Paul Larson, chief equities strategist at Morningstar. "It's only a matter of time, and my thought is it will be sooner rather than later."
In fact, Larson thinks Facebook's entrance into the S&P 500 could be "imminent--within a couple of weeks." Though there's a chance that Standard and Poor's could decide to give it a few more months.
MetLife (MET) was the fastest company to join the S&P 500, just eight months after its market debut.
"I'd say the reasons for holding off are very tenuous at best," said Larson, adding that with a market value of about $60 billion, Facebook would rank among the 50 largest companies in the index.
One reason Larson suspects S&P has some of its rules on timing in places may date back to the dotcom era, "when there were some ridiculous IPOs that were flash in the pan situations."
"But Facebook is not even close to that," he added. "It's a company with a real business, and it will be around for a long time. And given that its one of the most highly trafficked websites, I don't see how it would fail any sort of subjective judgment regarding its relevance."
Still, it's worth remembering that it took Google (GOOG) about 19 months to be added to the S&P 500. (It went public in August 2004 and wasn't added to the S&P 500 until March 2006.)
S&P spokesman Dave Guarino declined to comment on the potential of a company to be added or removed from its index, adding that the firm considers "this information to be market moving and material.">
While Facebook's addition to the Nasdaq-100 will help it win some additional shareholders, since more than a dozen mutual funds and about six exchange-traded fund tracks the index of the 100 largest non-financial companies listed on its exchange, the social network's stock could enjoy a bigger bump upon its entrance to the S&P 500.
More than 1,300 mutual funds and 17 ETFs use the S&P 500 as their primary benchmark index, which means they would have to add Facebook shares to their holdings once it is included in the index.
"Usually when a stock is added to the index, we see a short-term rise in the stock price as people speculate about all the various index funds that will have to add the stock in order to track the index," said Larson. "But when you think about what it means for the long-term value of the company, it doesn't really matter one way or the other."
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