Facebook certainly took the spotlight in the decision from S&P Dow Jones Indices to include the social media giant in the S&P 500. But lost in the Facebook news was the fact that Alliance Data Systems (NYSE:ADS) and Mohawk Industries (NYSE:MHK) also gained admission to the prestigious index, while Abercrombie & Fitch (NYSE:ANF), JDS Uniphase (NASDAQ:VIAV), and Teradyne (NYSE:TER) made their exit. Let's take a closer look at the other winners and losers in the Facebook index shuffle.
Alliance Data Systems has been among the largest companies in the S&P Midcap 400 index for months, putting it near the top of the list for inclusion in the index. The company has prospered by offering business services related to marketing, including loyalty programs, credit card processing for private label retailers, and more general marketing and analytics support. With so many companies looking for ways to reach potential clients more effectively and get more from their relationships with their existing customers, Alliance Data has been in exactly the right place at the right time to benefit.
Mohawk, on the other hand, is an old-economy stalwart, providing flooring materials including tile and carpet. After suffering particularly hard during the housing bust, improving home prices and conditions in the real estate market have helped shares more than triple over the past two years. In conjunction with Facebook and Alliance, Mohawk's addition keeps some balance in the S&P 500 rather than allowing tech dominance to rule the day.
The companies moving through the exit door pose few surprises as well. For Abercrombie & Fitch, years of underperformance have led many to question whether it can regain its once-unparalleled command of the teen retail market. Having lost half its value in the past two years, Abercrombie stock gives the retailer a market cap of just $2.5 billion -- about a quarter of Mohawk's and Alliance Data's. Today's S&P decision only highlights the loss of investor confidence that Abercrombie & Fitch has suffered, and the retailer will have to work hard to regain shareholders' trust. It's also noteworthy that S&P chose Abercrombie rather than J.C. Penney as the retailer to kick out of the index, granting the department store chain at least a brief reprieve.
JDS Uniphase has been a similar disappointment. After spiking higher in early 2011, the shares have remained locked in a tight range, leaving the company with a market cap below $3 billion. Conditions in the fiber optic business have been difficult because of weak spending from telecommunications companies, but JDS Uniphase in particular has seen signs that it might be losing market share to rivals that are rebounding more quickly. The question for JDS Uniphase is whether major telecoms will choose its equipment over its rivals' offerings, but S&P wasn't willing to wait any longer for the company to prove itself.
Teradyne is another tech stock that has had trouble, with its testing equipment business for semiconductors and other electronics having faced falling revenue and earnings this year. With a market cap of $3.2 billion, many would have expected other companies to get the boot earlier. But choosing a second tech company to match up with Alliance Data and Facebook has a certain symmetry to it, which S&P likes to have in its index changes.
For those who are disappointed to see their stocks leave the S&P 500, note that some studies have suggested that companies that get removed from the index actually do better than the stocks that replace them. Still, S&P's decisions show the way that the economy constantly changes to adapt to changing customer demands, and it'll be interesting to see how Mohawk, Alliance Data, and Facebook respond to their newfound status.
Fool contributor Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter @DanCaplinger. The Motley Fool recommends and owns shares of Facebook. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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