easyJet shares: is rejoining the FTSE 100 a buying opportunity?

The FTSE 100’s set to bring in easyJet in place of Endeavour Mining. So is buying shares in the airline ahead of the inclusion a good idea?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The FTSE 100‘s supposed to represent the largest publicly-traded companies based in the UK, weighted by market-cap. And every three months, the index is reshuffled to reflect this. 

In the latest reshuffle, easyJet (LSE:EZJ) is set to rejoin the index, with Endeavour Mining moving into the FTSE 250 to make way. So could this create a buying opportunity for my portfolio?

Index reshuffle

The latest FTSE 100 reshuffle happens after the close Friday (15 March). So easyJet becomes part of the index at the start of next week.

Given this, it’s natural to think demand for the airline’s shares will be unusually high on Monday morning. Funds that aim to track the FTSE 100 will have to add the stock to their portfolios.

In the stock market – as with any market – when demand surges, prices go up. So it seems reasonable to expect the easyJet share price to rise at the start of next week. 

It might therefore seem like now’s a great time for investors to buy the stock. But I’m dubious of this for a few reasons. 

Caution

One I’m wary about is news of the FTSE 100 inclusion has been public for a while. People wanting to get ahead of the curve have therefore already had time to do so.

Given this, it seems plausible to me that demand might have been elevated for some time. If I’m right, the additional boost Monday morning’s going to be limited. 

Furthermore, I’d expect any increase in demand to normalise pretty quickly. Even if the share price does go up, I’d view this as a short-term opportunity, rather than a long-term one.

From an investment perspective, I don’t think a boost from FTSE 100 inclusion is going to make a meaningful difference. Over time, I think the equation comes down to how the business performs.

easyJet shares

Since the end of the pandemic, easyJet’s managed a strong recovery. And the firm’s low-cost model should make it more resilient than most in difficult economic times.

Nonetheless, there are some significant considerations that put me off the stock as a long-term investment. One is the state of the airline industry, where fixed costs are high.

The cost of operating a flight doesn’t depend much on the number of passengers. Most of the costs – fuel and staffing – are fixed regardless of whether the plane is 75% or 100% full.

This incentivises airlines to sell their last few seats at any price, since the cost increase is minimal. The result is intense competition, making a meaningful competitive advantage hard to come by. 

A buying opportunity

It’s natural to think easyJet’s inclusion in the FTSE 100 presents a buying opportunity. But from an investment perspective, I’m not so sure this is the case.

Buying the stock ahead of an expected surge in demand for the shares looks risky to me. Given this, I’m looking elsewhere for stocks to buy at the moment.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Stephen Wright has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Tanker coming in to dock in calm waters and a clear sunset
Investing Articles

Is the BP share price primed for lift off?

As an activist investor takes a substantial holding in BP, Andrew Mackie assesses what it will take to energise the…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

No savings? I’m using the 5-step Warren Buffett method as I aim to get rich

Christopher Ruane outlines a handful of investment techniques he uses, inspired by the incredible stock market record of Warren Buffett.

Read more »

Mature Caucasian woman sat at a table with coffee and laptop while making notes on paper
Investing Articles

With a spare £3,000, here’s how a new investor could start buying shares

Our writer explains how someone with a few thousand pounds and no prior stock market experience could start buying shares…

Read more »

UK money in a Jar on a background
Investing Articles

£10,000 invested in Greggs shares in 2020 has made this much passive income…

Greggs shares have struggled lately due to economic weakness and rising costs. Are they still worth considering for an ISA…

Read more »

British union jack flag and Parliament house at city of Westminster in the background
Investing Articles

Don’t look now, but the FTSE 100’s beating the S&P 500 in 2025…

So far this year, UK stocks have been doing better than their US counterparts. So is the FTSE 100 the…

Read more »

Investing Articles

How much would someone need in UK shares to earn £5,000 in passive income each month?

Thousands of Stocks and Shares ISA investors have built up more than a million pounds and can sit back and…

Read more »

Investing Articles

£10,000 invested in Tesla stock 1 month ago is now worth…

Tesla stock is remarkably volatile for a mega-cap company. While this presents some opportunities for investors, it’s also inherently risky.

Read more »

Concept of two young professional men looking at a screen in a technological data centre
Investing Articles

This under-the-radar software company could be one of the UK’s finest growth stocks

Hidden beneath the FTSE 100 and the FTSE 250, Stephen Wright thinks there are some outstanding growth stocks for UK…

Read more »