Youngevity (YGYI) will be added to the Russell 3,000 index with the July 1st reconstitution of the index. The list of companies within the index was posted on June 7th. The Russell 3,000 is a market-cap weighted index of the 3,000 largest U.S.-traded stocks which represent about 98% of all U.S incorporated equity securities. The Russell 3,000 index is reconstituted once per year after the last Friday in June.
For Youngevity, inclusion in the index is coming at a good time. Institutional ownership of the equity was already on the rise prior to this news, and index inclusion will help to increase that metric. With many clone funds essentially mirroring some of the indexes, it creates an opportunity where the stability of institutional and hedge fund holders increases.
If you consider that Youngevity is an addition to the index rather than an existing participant simply being included once again, you can begin to contemplate what that means. In simple terms, it will create buying pressure from every fund or EFT that tracks or mirrors the Russell 3,000 index.
It does not stop there. The Russell 3,000 index has subsets. The 1,000 largest companies in the 3,000 index make up the Russell 1,000. Meanwhile, the smaller 2,000 companies in the index make up the Russell 2,000. Thus, by extension, Youngevity will be a component of the Russell 2,000 index as well. This means any EFT or funds that track the Russell 2,000 will also need to be buyers of YGYI stock.
Some index funds employ an active strategy, assigning weighted balance to the funds as a defensive strategy when poor markets are anticipated. The Russell 3,000 is a passive index. This means that there will be less volatility due to defensive re-balancing.
Another aspect of inclusion in index funds is that it tends to take shares off of the market which could otherwise be available for shorting. Some of the more recent struggles in the equity came with an increase in short volume. Fewer shares available to borrow on a short position means that the cost of borrowing shares to short will likely increase. Increased borrowing costs typically mean a less profitable strategy. Simply stated, inclusion in index funds helps create stability in an equity by creating holders of the stock while at the same time adding to stability by making the cost to borrow shares more expensive.
All of this can create a great trading opportunity for investors considering a stake in the company or even those that already have a stake. If you are considering a stake, you know that there will be buying pressure in early July. If you already hold, you can anticipate a rise in the equity and offers to increase the interest on lending shares. Existing holders also have the options market to consider. There are 3 more weeks of trading prior to the reconstitution of the Russell 3,000 index. A savvy trader can gauge the options market and what this will mean. Whether you want to write covered calls to profit from the stock you currently hold or want to play puts and calls to build a bigger position, you have the knowledge of the index inclusion at your back.
The bottom line is that Youngevity is poised for growth in 2019. With three distinct revenue generating arms of the business, the fundamental story of this company is quickly shifting toward profit. The equity currently trades at less than 1x revenue. This is extreme undervaluation by any metric. Direct selling is oft valued between 1x and 3x. Coffee can trade at as much as 5x, and some hemp related equities trade between 5x and 10x. In my opinion the play here is simple. It is a valuation play in its purest form. Youngevity is poised to be a profitable company. Its direct selling business is well-established and has stability. Its coffee business is coming into its own with substantial contracts on the books, and its hemp business is maturing smartly at an opportune time. All in all, Youngevity provides a valuation opportunity which is protected by well-established revenue streams. Stay Tuned!
Disclosure: I am/we are long YGYI. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.