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Today we learned that Paycom Software (PAYC: $303, up 2% so far this week and then jumping another 5% overnight to the $317 level) was the most dynamic mid-cap company on Wall Street. It really isn't surprising.

 

Paycom is soaring now because it's joining the S&P 500 next week. The initial weighting might be extremely small but every fund manager who tracks the index will still need to buy the stock to make sure all the numbers add up. Even a small allocation in the index turns into big money when those managers control $9.9 trillion. We estimate that they'll ultimately need to buy at least 20% of the company in that scenario.

 

The index masters at Standard & Poor's had their reasons for picking Paycom to replace WellCare Health Plans (WCG), which is getting bought out by a competitor. For us, it's a pure question of dynamism. This stock is relatively small now by S&P 500 standards but there's plenty of room for growth. After all, it soared 115% over the past 12 months . . . better performance than all but two of the companies on the blue-chip index now. And YTD there are only four current S&P 500 constituents ramping up faster.

 

The flood of forced fund manager buying will help support that narrative for the next few months, for obvious reasons. They don't own any Paycom now because they only add stocks that join the index. They'll need to own Paycom because they don't have a choice.

 

Either way, we've loved this stock since April 2018, when our first recommendation went out at $111. Less than two years later, Paycom has given BMR subscribers a healthy 170% return, beating the S&P 500 by 70% a year. No wonder this stock eventually hit the point where they had to make room for it in the index. It's one of our hottest holdings.

 

Of course we had our share of recommendations do even better last year. Roku (ROKU), Shopify (SHOP) and Universal Display (OLED) have all outperformed Paycom over the last 12 months and several of our other Aggressive stocks are ahead of this company YTD. But as yet, they're a little small for the S&P 500, with the exception of Shopify, which is ruled out due to its Canadian headquarters. If only it would set up shop here in the US, it could get this kind of index fund surge as well.

 

Then again, Shopify doesn't need the help - $285 in November, $475 yesterday. Neither does Paycom, really, but we're always happy when the market picks up on one of our stocks. We were here early. Everyone else can share the fun now.