Who will replace GM in the Dow?

May 27, 2009

What’s going to happen to the Dow once GM files for bankruptcy? Matthew Hougan has a few ideas:

If I were a betting man, I’d say that the good folks at Dow Jones do a bit of a clean-up of the index, replacing not just GM but Citigroup (NYSE: C), too. If that happens, the smart money says that Wells Fargo will enter the index as a new financial representative, with Goldman Sachs (NYSE: GS) a distant second bet.

Beyond that, it’s an open race. I still think Amgen would be an interesting choice, but Nike (NYSE: NKE), Apple (Nasdaq: AAPL), Google (Nasdaq: GOOG) and a few others probably make the short list as well.

I don’t think that we’ll see a Citi-for-Wells Fargo exchange — swapping into a higher-priced company in the same industry seems to be asking for trouble. I also don’t think that Goldman is likely to make it into the average. Yes, the Dow is arguably “short” financials now that AIG has been swapped out for Kraft, but to no greater an extent than the economy as a whole. I think that adding Google — arguably the strongest stock-market brand in the world these days — makes a lot more sense.

On the other hand, GM is a hugely-important industrial company, and having a Dow with no automakers feels weird. Dow Jones could definitely be excused for just replacing GM with Ford.


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