re: WCOM, there's always the 'hit-the-road-jack' s&p500 phenomenon...
"14-May-02
Worldcom (WCOM) 1.23 -0.21: On a day when the broad market is up nicely, and the Nasdaq has rallied back above the 1700 level for the first time since 4/26, it may seem strange that we've decided to profile a company that is down nearly 15% in today's action... By now most of you probably know that Worldcom was booted out of the S&P 500... In light of the company's myriad of problems, it was only a matter of time before S&P took this step... Frankly, we've been anxiously awaiting the news, as history suggests that now is the time for traders to buy the stock... That's right, we said buy... This may seem counterintuitive, as inclusion in the S&P 500 is generally considered a positive for a stock given the benefits of index-fund buying... However, as Jon Markman of MSN Investor reported several months ago, "the difference between the returns of expelled versus added stocks in S&P's widely watched large-cap (S&P500), mid-cap (S&P400) and small-cap (S&P600) indexes from January 2001 through the first week of December 2001 was a stunning 45 percentage points, with expelled stocks gaining 42.3% and added stocks losing 2.4%." The good news for traders is that most of that gain occurs within the first one to two months of a stock getting the boot... Briefing.com cited Mr. Markman's study when profiling K-Mart (KM) back on 1/17/02 - the day after it was shown the door by the good folks at S&P... Though KM is currently trading below the level it was at back in mid-January, the stock did stage a powerful short-term run of 22%, peaking at $1.95 on 3/13/02... Meanwhile, Plum Creek Timber (PCL), the stock that took KM's place, is virtually unchanged since being added to the S&P 500, and has never been up by more than 5% since 1/16/02... In other words, if the market runs true to form over the next couple of months, WCOM, and not Apollo Group (APOL 37.43 +0.78) - the stock which took Worldcom's place in the S&P 500, will be the better trading buy over that period... The same strategy would also apply to US Air (U 2.86 -0.12), which joined WCOM in being expelled from the S&P 500 last night. Replacing U is BJ Services (BJS). - Robert Walberg, Briefing.com"
it's screwy but it happens...(gg) |
