Don’t be disheartened by the retreat in the share price of A2 Milk Company Ltd (ASX: A2M) after the initial excitement from news that the stock is included in the MSCI index faded.
The stock slipped 0.7% to $12.13 during lunch time trade after jumping over 1% at the opening bell in anticipation of what is one of the market’s worst kept secrets.
Brokers had been expecting our market superstar to be added to the MSCI Global Standard Index and the drop in its share price looks to be a case of “buy the rumour, sell the fact”.
But some experts are convinced that the retreat is only temporary and that the stock is heading higher in the few weeks.
That’s the view expressed by Bell Potter’s high-profile stock guru, Richard Coppleson, who is predicting that the stock will surge back to over $13 over the next two weeks because of its inclusion into the prestigious global stock benchmark that is watched closely by international fund managers.
“I’ve see this over 20 years and the MSCI is probably the most powerful index that is watched & mirrored across the globe by [international fund managers]. This is a big thing,” he wrote in his report yesterday.
A2 Milk’s membership into the global index will put the stock in front of many active international fundies, some of whom would have only seen the stock for the first time.
There will also be buying support for the stock by passive funds who have to track the MSCI index and those who use the index as a short-cut tool to help them decide what to buy.
There are also plenty of brokers around town who are bullish on the stock even after the milk supplier surged by nearly 280% in the past year compared to the less than 5% gain by the S&P/ASX 200 (Index:^AXJO) (ASX:XJO).
All five brokers who cover the stock are urging investors to buy A2 Milk with an average price target of $12.94 a share. I have a feeling the market darling will soon exceed this price target, and then some, if international fundies start buying the stock.
Interestingly, New Zealand building materials company Fletcher Building Limited (ASX: FBU) has held on to its strong gains on the back of the MSCI news.
Investors are buying the stock not because it was included in the global index but because it was not dumped from the index.
Obviously, some shareholders have sold the stock on this worry and are now scrambling to recover their positions. The stock jumped 3.5% to $6.08.
There was also speculation that another market darling Xero Limited (ASX: XRO) may be included in the MSCI index.
It didn’t happen this time and the stock is trading 1.8% in the red at $39.36 in the early afternoon. There’s always next time though as the index is rebalanced twice a year.
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Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of A2 Milk and Xero. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.