The Nasdaq 100 index is getting an update. Before the market opens next week on December 24, 2012, four former high-fliers will be removed from this index. Companies removed from an index typically fall ahead of the change, and could see heavy volumes right beforehand. Some of the most notable companies being removed from the Nasdaq 100 are:
1) Electronic Arts Inc. (EA)
2) Green Mountain Coffee Roasters Inc. (GMCR)
3) Research In Motion Limited (RIMM)
4) Netflix, Inc. (NFLX)
The substantial drop in the share price of EA and Netflix this year in 2012 hurt the market capitalization for these companies. Investors soured on game-makers like EA. Interest in social networking games and games for mobile devices helped push shares higher in the previous year. After chronic problems demonstrated by Zynga (ZNGA) throughout the year, investors simply lost interest. Netflix is up substantially from its 52-week low, but it was not enough to prevent its removal from the index. The company closed recently at around $95, and faces substantial pressure from Amazon (AMZN) Prime service offerings. RIM is up around 124% from its 1-year low. The smartphone maker will be reporting earnings this week.
The companies will be replaced by companies with market capitalizations between $9.3B and $23.14B:
1) Discovery Communications, Inc. (DISCA)
2) Equinix, Inc. (EQIX)
3) Liberty Media Corporation (LMCA)
4) Western Digital Corporation (WDC)Observations: Expect the volatility for the above-mentioned companies to rise, along with higher average trading volumes. Much of the “easy-money” was made for the companies being added to the index. In the long-run, the valuation of the companies should not be impacted. Greater liquidity for the companies added should be expected.