The S&P 500 is often considered the backbone of modern investing. But how effective is the index committee at choosing which companies belong in it? Structural Valuation Analysis (SVA) provides a unique lens for evaluating whether recent removals from the index were sound decisions, or costly mistakes. In this analysis, we’ll examine three companies recently removed: Caesars Entertainment (CZR), Enphase Energy (ENPH), and MarketAxess Holdings (MKTX).

📺 Watch the full Friday Focus episode here: https://youtu.be/LBGf1_miiVs

Caesars Entertainment (CZR): A Painful Exit After a 79% Decline

Caesars was added to the index in March 2021, at a lofty valuation of 3.5x book. Since then, the stock has collapsed 79%, now trading at roughly book value.

• SVA Insight: While the stock is at least closer to its intrinsic value, its fair market value remains depressed.
• Investor Takeaway: Removing CZR at this level may mean exiting just as potential recovery opportunities begin.

Enphase Energy (ENPH): From Peak Valuation to Collapse

Enphase joined the S&P 500 in December 2020—almost perfectly aligned with its SVA-defined HB8 level, a theoretical maximum of 53x book.

• Since then, shares have plunged 88%, falling from far above fair market value to slightly below it.
• SVA Insight: Timing couldn’t have been worse. Inclusion happened at extreme overvaluation, and removal comes as the stock approaches fairer value.
• Investor Takeaway: This case illustrates the dangers of index additions at euphoric valuations.

MarketAxess Holdings (MKTX): Down 71% Since Inclusion

MKTX entered the index in July 2019 and has since fallen 71%. While it hasn’t yet returned fully to fair value, it’s getting closer.

• SVA Insight: Another example where the committee’s timing was unfavorable.
• Investor Takeaway: Once again, the index captured the downside while potentially missing any recovery.

The Bigger Picture: Is the S&P 500 Committee Failing Investors?

Rob Barnett’s research shows that stocks removed from the S&P 500 tend to outperform the index by 5% annually over the next five years. This suggests that forced selling creates opportunities for disciplined investors.

Based on the current removals, the committee seems to have locked in steep losses—averaging 80% declines—before choosing to exit.

What’s Next?

This week we reviewed the stocks being removed. Next Friday, we’ll analyze the stocks being added to see if the committee redeems itself or continues a poor track record.

Stay tuned for part two: Are the new additions better timed?