"Why S&P 500 Omits Valuable Companies"--Bloomberg.com...
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>>>Why S&P 500 Omits Valuable Companies: David Wilson (Update1)
By David Wilson
Princeton, New Jersey, Nov. 20 (Bloomberg) -- Several of the most valuable public companies in the U.S. don't have a chance of joining the Standard & Poor's 500 Index any time soon.
It's easy to draw that conclusion after reviewing the list of companies that S&P has named to the U.S. stock-market benchmark in the past three months.
Forest Laboratories Inc., named last week to replace Seagate Technology Inc., was just the second company among 13 selections whose market value surpassed $10 billion. The other was Dynegy Inc., one of the largest U.S. energy traders.
At Friday's close, Forest Labs was valued at $11.7 billion. More than three dozen companies had a higher value than the New York-based drugmaker.
Five of them are takeover targets, so they aren't likely to be candidates for any index much longer.
Berkshire Hathaway Inc., the group's most valuable company at almost $100 billion, trades inactively because its shares are the more expensive ones listed on U.S. exchanges or the Nasdaq Stock Market.
Nine others have less than half their common stock readily available for trading. S&P omits companies whose ``floats'' are this small, even if millions of shares trade daily.
All the others fall into one of three categories -- technology, media and telecommunications -- that already provide the bulk of the S&P 500's total market value. And there's plenty of overlap between the companies, based on the industry segments that they represent.
Let's take a closer look at the lineup.
Takeover Targets
COMPANY TICKER MARKET VALUE
Infinity Broadcasting Corp. INF $34.3 billion
VoiceStream Wireless Corp. VSTR 26.2 billion
Axa Financial Inc. AXF 24.0 billion
SDL Inc. SDLI 21.4 billion
Nabisco Holdings Corp. NA 14.4 billion
Viacom Inc. took control of Infinity, the second-largest U.S. radio broadcaster, when it bought CBS Corp. in May. It's offered to swap stock valued at $4.6 billion for the remaining shares.
Axa Financial's situation is similar to Infinity's. Axa SA wants to buy the 40 percent holding in the U.S. insurance company that it doesn't already own. Last month, the unit's board approved a sweetened offer valued at $9.4 billion.
VoiceStream, a mobile-phone company, is the target of an offer from Deutsche Telekom AG. SDL has accepted a bid from JDS Uniphase Corp., a rival manufacturer of fiber-optic equipment for telecommunications networks. Nabisco, known for Oreo cookies and Ritz crackers, is about to become a unit of Philip Morris Cos.
Insufficient `Float'
COMPANY TICKER MARKET VALUE
Berkshire Hathaway Inc. BRK/A $99.4 billion
United Parcel Service Inc. UPS 67.0 billion
AT&T Wireless Group AWE 45.9 billion
Goldman Sachs Group Inc. GS 40.0 billion
Genentech Inc. DNA 38.1 billion
Hughes Electronics Corp. GMH 34.6 billion
MetLife Inc. MET 22.9 billion
Gemstar-TV Guide International Inc. GMST 22.1 billion
Immunex Corp. IMNX 21.0 billion
USA Networks Inc. USAI 13.9 billion
Class A shares of Berkshire Hathaway, investor Warren Buffett's holding company, traded as high as $66,500 last week. Class B shares, each representing 1/30 of a Class A share, peaked at $2,199. This year's trading has averaged 513 and 14,200 shares a day, respectively.
UPS and USA Networks also have two classes of stock, with only one trading publicly. That class amounts to less than half the shares at the package-delivery company and cable-television programmer, though UPS has made most of the other one available for trading by allowing automatic conversion.
For the others, Bloomberg statistics show that as little as 16 percent of the common stock -- or tracking stock, in the case of AT&T Wireless and Hughes Electronics -- is available to trade. Immunex, a biotechnology company, was below 50 percent before a sale this month by the company and American Home Products Corp.
Technology
COMPANY TICKER MARKET VALUE
Juniper Networks Inc. JNPR $49.0 billion
Ciena Corp. CIEN 29.7 billion
i2 Technologies Inc. ITWO 25.5 billion
Brocade Communications Systems Inc. BRCD 24.3 billion
BEA Systems Inc. BEAS 23.9 billion
VeriSign Inc. VRSN 22.5 billion
Ariba Inc. ARBA 18.3 billion
PMC-Sierra Inc. PMCS 18.3 billion
Sycamore Networks Inc. SCMR 17.5 billion
Applied Micro Circuits Corp. AMCC 16.5 billion
Amdocs Ltd. DOX 15.8 billion
Intuit Inc. INTU 12.7 billion
Exodus Communications Inc. EXDS 12.4 billion
Redback Networks Inc. RBAK 12.4 billion
Vitesse Semiconductor Corp. VTSS 12.1 billion
Tibco Software Inc. TIBX 11.8 billion
Technology companies -- maker of computers, software, semiconductors and telecommunications equipment, to name a few examples -- represent about 27 percent of the total market value of the S&P 500's members, according to Bloomberg calculations.
This percentage is almost as large as the total for the second- and third-largest categories, financial and health care. And the two most valuable companies added during the second half both have technology-based businesses: JDS Uniphase and Broadcom Corp., a maker of communications chips.
Applied Micro, PMC-Sierra and Vitesse all produce similar chips. Juniper and Brocade make computer-networking equipment; Ciena, Sycamore and Redback do the same for telecommunications networks. BEA, i2 and Ariba help companies do business online.
And while Amdocs is based outside St. Louis, the provider of customer-service and billing software got started in Israel. S&P excludes non-U.S. companies from joining the ranks of the 500.
That leaves VeriSign, a provider of Internet security and address-registration services; Exodus, an operator of corporate Web sites; Intuit, the maker of Quicken and TurboTax personal- finance software; and Tibco, a producer of software enabling computer networks to communication.
Of the four, only Intuit has made money with any kind of consistency -- reason enough for S&P to reject the rest. VeriSign posted a $1.32 billion third-quarter loss because of merger costs. Exodus hasn't had a profitable quarter since going public in 1998, and Tibco just had its first one.
Media & Telecom
COMPANY TICKER MARKET VALUE
AT&T - Liberty Media Group LMG/A $45.1 billion
Cox Communications Inc. COX 23.8 billion
Echostar Communications Corp. DISH 16.1 billion
Cablevision Systems Corp. CVC 13.8 billion
Fox Entertainment Group Inc. FOX 12.9 billion
Level 3 Communications Inc. LVLT 12.1 billion
Telephone companies account for about 6 percent of the S&P 500 members' market value, according to Bloomberg data. Another 3 percent or so comes from media companies, including within a category known as ``consumer staples.''
The presence of phone stocks helps explain the absence of Level 3, which is building a fiber-optic network for local, long- distance and data services. So does the fact that the company has gone without a quarterly profit for 2 1/2 years.
Liberty Media is another tracking stock, though AT&T plans to make the cable programmer independent. Rupert Murdoch's News Corp. controls Fox, a movie and television company, and Cox Enterprises Inc. controls Cox, a cable-system operator.
Echostar and Cablevision -- companies that run satellite- based and cable systems, respectively -- both show net losses in quarter after quarter. They focus on other profitability measures, especially cash flow.
Now it's always possible that one or more of these companies, or any of those others mentioned, may find their way into the S&P 500 eventually. But don't expect many to get there right away.<<< |
