Who will replace GM in the Dow?

By Felix Salmon
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.

5 comments

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/

Ooh, I know: OpenTable.

There’s no way Ford will replace GM as the new component. The company will need to have a solid, reliable future, and given that the financials aren’t well represented (especially if Citigroup gets the boot), I believe it could be Wells Fargo. Even given the present state of the industry, analysts believe Wells Fargo can outrun the debt/losses due to their huge cash growth position. Another option could be Aetna, or at least those rumors abound.

Posted by Chris | Report as abusive

Toyota! LOL.

Felix, great work!

I just wrote about possible Dow replacement candidates. You can visit my site. Thought you might be interested.

Thanks,

What will happen to Citigroup stock after being dropped from the DOW?

Posted by Chris | Report as abusive