The recent move by S&P Dow Jones Indices to bounce
Dish Network
from the
S&P 500
in favor of
Palo Alto Networks
highlights the vulnerability of companies with small market values to removal from the key index.
Dish Network (Ticker DISH) is the second-smallest company in the S&P 500 ranked by market capitalization and it will leave the index on June 20 as part of a quarterly rebalancing. Dish’s market value is $3.7 billion.
Companies with small market capitalizations are in danger of being dropped from the S&P 500 because their size greatly reduces their impact on the index which is weighted by the market values of its components. And smaller companies are better suited to inclusion in S&P’s mid-cap 400 and small-cap 600.
S&P Dow Jones Indices, which oversees the S&P 500, also wants to make room for larger companies that can have a bigger impact on the index.
Which other companies could be dropped from the S&P 500? Here are the other nine companies aside from Dish with the smallest market values as calculated by statisticians at Dow Jones, Barron’s publisher.
Ranked from lowest to highest market value, they are
Newell Brands
(NWL),
Lincoln National
(LNC),
Advance Auto Parts
(AAP),
Zions Bancorp
(ZION),
Organon
(OGN),
DXC
Technology (DXC),
Comerica
(CMA),
Sealed Air
(SEE) and
Alaska Air Group
(ALK).
These nine companies have market values that range from $3.6 billion to $5.9 billion and their shares generally have been hard hit in the past year with six returning negative 40% or worse.
These nine wouldn’t make the cut for inclusion in the S&P 500 because their market values are below the current minimum of $12.7 billion for the index. They are better suited to the S&P mid-cap index which has an eligibility range of $4.6 billion to $12.7 billion or the small-cap index, which admits companies in the $750 million to $4.6 billion.
S&P doesn’t make a lot of changes to the S&P 500 and it doesn’t systemically drop companies below its inclusion threshold, but it targets companies with small market values.
So far this year, there have been six changes. Besides Dish, three of the companies dropped from the S&P 500 were failed banks—
First Republic Bank,
Signature Bank
and
SVB Financial.
The other two,
Vornado Realty Trust
and
Lumen Technologies,
had small, sub $5 billion market values.
Besides
Palo Alto Networks,
Axon Enterprise,
Fair Isaac,
Bunge,
Insulet,
GE Healthcare
have been added to the S&P 500 this year.
Write to Andrew Bary at andrew.bary@barrons.com
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