Global Investing

Who’s next for the Dow?

March 9, 2009

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?”

Comments
8 comments so far | RSS Comments RSS

I think Goldman Sachs makes sense to represent “financial industry” for DJIA in terms of its relative strength among other financial industry players.

Posted by Kendrick | Report as abusive
 

Google, yes. Not Apple. There is too much volatility in its past. Someday Steve Jobs will retire, and finding a replacement for him will be a challenge. To be fair, I have heard that Jobs has plausible successors, but that’s easy enough to say.I would also look hard at Dell. Smaller market cap, which might even be a good thing, excellent brand, solid product line, innovative direct marketing and custom building approach which might be very difficult, if not impossible to replicate for any other computer manufacturer.

 

Best BuyStrong organization, well defined and managed.

Posted by David | Report as abusive
 

How about Koch Enterprises, the guys that took over Georgia Pacific, or Shorenstein LLc landlords, one assumes that the Dow Jones Industrial average represents, the United States big business, unfortunately the way I see it, only the businesses that are publically traded, a bunch of CEO’s, COO’s, CFO’s, Board of directors, and upper management, that are completly unaccountable and irresponsible towards their shareholders are public companies, they give all the risk to the shareholders while paying themselves huge salaries and bonuses based on last years performance without any consideration on next years performance.No one listens, 21 years ago ousted Solomon partners CEO once said the worst mistake we made was going public, giving the risk to the shareholders, while making huge bonuses, did anybody listen? no, all the other investments banks went public including GS, and we know where they all are? maybe insolvant?Greenspan warned of irrational behavior in the 90′s did anybody listen? no, you got the technology bubble stock options and whats nots all employee’s are going to be millionare’s, yeah right on the back of the share holders. Greenspan quit and Bernanke followed (expert in the depression), some people call him helicopter Ben, no he is not, he is Mr. Clean up Ben, has to clean up all the Sh”t that the unaccountable have left for him, personally I have all my trust in him. Now of course Mr. Greenspan is to blame? you must be kidding me too? did anybody hear his testemony in congress? he may have eased lending restrictions and all, but his point was, he did not expect that banks would take the risks of putting themselves out of business,little did he know that most managers did not even care about their equity position, they made all their money in points and fee’s, come one is everybody stupid? lets lend to a subprime borrowers, bad credit score (a record of not repaying), give them 100% loans at a discount for a couple of years( so that they qualify for their liars income), get their loan to reset to a higher rate in their future (so that they can make more money selling their loans), and the buyers of these loans call them an asset and leverage them? you must be kidding me again, unless evey body is a fool they are LIABILITIES. Now this did not only happen in RE also in CRE, a clear example is BX formally Blackstome private equity, bought EOP, split it up, made up new budgets (cut them), made up new revenue forcast (increased them) and got a whole load of bankers that made money on points and fee’s to finance together with the buyers, gues what one of the examples is MPG probably insolvant by now. So BX goes public thinks the chap that runs the company is a houdini at making money? where is BX now? took billions off the chinese government,my question is why did he throw that lavish birthday party, I doubt he can ever get on a plane and fly to china they may arest him for embezling funds, I classify BX as a do not give them any money to invest, they will take your money, give you a return but you pay on the otherside, Shorenstein isclearly a better bet, they are not embezlers.Now of course everybody will say what is my point, in the old days going public was a way to raise capital, now a days going public is a way to get rich fast and spread the risk to the shareholders.The most accountable companies and responsible companies are now privately held companies, and probably the most respectable companies.Do the indexes represent business in the US? my answer is no. Indexes only represent the most irresponsible businesses in the US, that do not have any Stakeholder, Shareholder, and most important accountability and responsability of management.One can only justify the huge salaries and bonuses of Managers of a public company IF they are wholly responsible for the future performance of the company.So lets get to the point, I do not believe in new laws by the government, or retribution or going back, it’s about going forward.I am in the restaurant business, my waiters work for me, right? yet I tell my waiters they work for the customers? understand? because I want my waiters to give the best service and make the most money aka I am happy, customers are happy, etc.It is time for the NYSE, AMEX and Nasdaq to hold their companies accountable and responsible, for the representation of the shareholders, not by delisting them, but directors and managers are personally responsible, for the losses of shareholdfers just as if they were a private company. “Going public allows you to raise a lot of capital but should you fail you do not get to walk away with millions and my customers are left holding the empty bag” to do this one does not need goverment legislation, sec regulation, or any other funny business, just an accountability and responsability. NYSE, AMEX and NASDAQ better start looking after their customers the shareholders, otherwise the s&p, djia will go to “0″ the only companies left will be private ones.Micknon permanent resident alien investor

Posted by Mick | Report as abusive
 

Berkshire Hathaway. Despite their largest shareholders protestations to the contrary, they are an index in and of themselves. The broad diversity of their holdings will reflect what is going on in the wider market, further validating the Dows relevance.

Posted by Steve | Report as abusive
 

Great Article-Interesting to note that the decision is left to just one person.You mention a few companies that may be added–I wonder if they too will become valued at a $1 some day in the future?The organic nature of the day is tesatament to its success as an index to the last bastion of capitalism on the planet.Please keep keep up the good work and share your ideas more in the future.With gratitude.Lilly

 

As businesses fail and are removed from the Dow,you can blame the Democrats and their Donkeynomics policies.

Posted by David | Report as abusive
 

The cover story of the latest Barron’s declares optimistically “Sure, stocks could slide much further — but they probably won’t. By most measures, they are downright cheap.”The Stock Research Portal comments that the article contains a “fatal flaw”: “the heavy reliance many economists, analysts, others place on historic trends and their application to current day prospects. Right or not, I believe that after the turn of the century the world has become a quite different place.”Via Stock Research Portal (www.stockresearchportal.com)

Posted by Kris | Report as abusive
 

Post Your Comment

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/