Why Aren't These 4 Stock Giants in the S&P 500?

The S&P 500 Index (SNPINDEX: ^GSPC  ) includes 500 of the biggest companies in the U.S. market. But for various reasons, some large companies have gotten left out of the benchmark index. Let's look at four of the largest ones and try to figure out whether Standard & Poor's will remedy their omission in the near future.

Facebook (NASDAQ: FB  )
With a market capitalization of more than $65 billion, Facebook erupted onto the public markets last year to great fanfare and even greater disappointment. Yet despite the social-media giant's woes, the company has been slowly getting itself onto some major market benchmarks, most notably the Nasdaq 100 index.

For Facebook to get into the S&P, current standards require that the company be "seasoned for six to 12 months." With the company coming up on its one-year IPO anniversary, Facebook should expect to be in investors' index portfolios in the very near future.

Las Vegas Sands (NYSE: LVS  )
As a worldwide casino gaming giant, Las Vegas Sands has a $46 billion market cap, which would easily be enough to put it into the top 100 companies, let alone the top 500. But during the 2008 market meltdown, the stock traded as low as $1.38 per share, bringing its market cap down to small-cap territory.

Another key reason Las Vegas Sands hasn't regained admittance to the S&P 500 probably has to do with CEO Sheldon Adelson's substantial insider stake in the company. S&P prefers that companies have ample shares constituting the public float in order to meet index-fund demand, and with less than half of its outstanding shares actually available for trade, Las Vegas Sands may get left off the benchmark index for a while unless Adelson decides to divest himself of his big holdings.

General Motors (NYSE: GM  )
GM's bankruptcy in 2009 resulted in a huge reorganization that included having the U.S. Treasury hold a substantial stake in the automaker's new stock. Although the Treasury has made some sales of stock, it still owns nearly $8 billion in GM -- not quite a fifth of the automaker's overall market cap. Other parties to the bankruptcy proceeding, including auto unions, also hold big share positions.

The result is that of GM's outstanding shares, barely 40% are available to investors. Until the Treasury and other parties sell off more of their positions, GM is unlikely to gain admittance to the S&P 500.

VMware (NYSE: VMW  )
Cloud-computing giant VMware is an example of how corporate structures can give individual-stock investors opportunities that index funds lack. As a roughly 80%-owned subsidiary of EMC, VMware lacks a substantial float, which makes it unlikely that the stock will ever get into the S&P as long as EMC retains its stake.

Keep your eyes on Facebook
Of these four stocks, Facebook is the most likely to find itself part of the S&P in the near future. As lockup expirations have increased its float, its high market cap and importance in the social-media space make it a logical candidate for addition in the near future. The other three companies will need insiders to take action to find their way into the S&P 500.

After the world's most-hyped IPO turned out to be a dud, most investors probably don't even want to think about shares of Facebook. But there are things every investor needs to know about this company. We've outlined them in our newest premium research report. There's a lot more to Facebook than meets the eye, so read up on whether there is anything to "like" about it today, and we'll tell you whether we think Facebook deserves a place in your portfolio. Access your report by clicking here.


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  • Report this Comment On April 15, 2013, at 11:43 AM, TedShepherd wrote:

    I have most of my retirement assets invested in index funds, including the S&P 500. It bothers me a little to see people, much smarter or gutsier than I am, benefitting from mandatory purchases or sales of stocks going into the S&P 500. I have no way to do the research that would put me in a position to anticipate these changes. Well, really, I don't want to bother. One way I deal with that is by buying index funds that are broader than the S&P 500. They are likely to include both the stocks going into that index and the stocks coming out. It seems to make no significant difference in results whether I invest in the S&P 500 index or the Schwab 1000 or the Vanguard Total Stock Market. Both of those indexes include the four giant companies you mention, so far as I know.

    "The Schwab 1000 Fund seeks to match the total return of the Schwab 1000 Index® by investing in the stocks of the 1,000 largest publicly traded U.S. companies."

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