Good or Bad News? AMD and SAI Are Out of the S&P 500 (VRTX & AME)

Last week, it was reported that S&P MidCap 400 constituents Vertex Pharmaceuticals (NASD: VRTX) and Ametek Inc (NYSE: AME) would be replacing Advanced Micro Devices (NYSE: AMD) and SAIC Inc (NYSE: SAI) in the S&P 500, and Advanced Micro Devices and SAIC will replace Vertex Pharmaceuticals and Ametek in the S&P Mid Cap 400. I should mention that both Advanced Micro Devices and SAIC Inc are in our SmallCap Network Elite Opportunity (SCN EO) portfolio and as of today, we are down 1.29% and up 19.77%, respectively, in both stocks. In the case of Advanced Micro Devices, we feel the company's transition into mobility and gaming consoles makes it a compelling value while defense contractor SAIC Inc is interesting as its well positioned to address cyber security issues. Moreover, SAIC Inc is splitting into 2 companies in a transaction that's expected to be completed before the end of the month.

The explanation given for the switch occurring is rather simple: Advanced Micro Devices is ranked #500 in the S&P 500 and has a market cap of just $2.75 billion while SAIC Inc's market cap is $5.34 billion. The market caps of Vertex Pharmaceuticals and Ametek are $17.74 billion and $11.07 billion, respectively, meaning the switch makes sense.

Moreover, my guess is that the switch will be a wash for investors as funds and ETFs that track the S&P 500 will dump their positions in Advanced Micro Devices and SAIC Inc while those that track the S&P Mid Cap 400 will be obligated to take up positions in both. A quick look at the performance of the iShares S&P 500 Index ETF (NYSEARCA: IVV) verses the iShares Core S&P Mid Cap ETF (NYSEARCA: IJH) reveals the following:

In other words, big is not always better and the iShares Core S&P Mid Cap ETF has outperformed the iShares S&P 500 Index ETF starting around the beginning of 2010 – meaning Advanced Micro Devices along with SAIC Inc are moving down to the better performing index plus the technical charts for both don't look too bad for traders and investors alike:

Finally, I should mention something about the new additions to the S&P 500:

Vertex Pharmaceuticals is a global biotechnology company with two FDA approved medicines, one for the treatment of hepatitis C (approved in May 2011) and another one for cystic fibrosis (approved in January 2012). In addition, Vertex Pharmaceuticals is developing new combinations of medicines to further treat both hepatitis C and cystic fibrosis. However, Vertex Pharmaceuticals really soared on April 19th thanks to positive clinical trial results for a drug regimen (which includes the already approved drug combined with an experimental drug) designed to treat cystic fibrosis.

Ametek is a global manufacturer of electronic instruments and electromechanical devices with annualized sales of $3.5 billion and over 120 manufacturing locations around the world plus more than 80 sales and service locations across the United States and in more than 30 other countries. Early last August, Ametek announced second quarter results that included records for operating income, operating margins, net income and diluted earnings per share plus the company's backlog exceeded $1.1 billion - an all-time high. 

The Bottom Line. Switching these four stocks between indices will probably have little impact on investors over the long-term.

SmallCap Network Elite Opportunity (SCN EO) has an open position in AMD and SAI. To find out what other open positions SCN EO currently has, and to learn why so many traders and investors are relying on this premium subscription service, click here to find out more.