Director, Strategic Research
Arzu's Feed
Mar 9, 2009
via Global Investing

Who’s next for the Dow?

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Arzu Cevik, director at Thomson Reuters Strategic Research, writes:”With Citi shares trading below $1, the first time since 1970 that a “penny stock” traded on the Dow Jones Industrial Average, it is widely expected that it will be removed from the index.”The company was added to the Dow in 1997 when it was still known as Travelers, and the last company to be removed from the Dow was AIG last September (when its stock hovered above $1) and was replaced by Kraft Foods.”It’s also expected that General Motors may be removed from the Dow. GM shares are trading slightly above $1 and there’s speculation it may be headed toward bankruptcy.”There are other stocks in the Dow that are now a part of Wall Street’s Dollar Menu. In fact, there are currently five Dow stocks trading in the single digit range.”Who will take their place in the Dow? Mostly likely, another company whose stock is faring better or relatively better in this recessionary environment.”There aren’t too many of those but if I had to guess, I’d say it would have to be a company with a strong brand name and one that is viewed as influential. Also, one whose shares aren’t trading in the single digits.”On the technology front, Apple and Google are possible contenders. In the pharmaceuticals/biotech world, perhaps Abbot Labs, Amgen, Bristol, Genentech and Gilead Sciences could be considerations. If terms of other industries and companies, perhaps Monsanto or Amazon?”Some might argue about the relevance of the Dow as it doesn’t accurately depict what’s happening in the markets because of its limited number of stocks and because it is price-weighted rather than market-value weighted like the S&P 500.”However, there is still a prestige factor involved in being part of this elite group and any company added would see a boost in volume and possibly price.”The top editor at The Wall Street Journal, which is published by Dow Jones, decides on changes to the index. It was reported (by Reuters) that they are currently monitoring the situation ‘closely.’”Who do you think should be included in the Dow and why?”