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Imminent Change to DJIA 30 (GM, F, CSCO, ORCL, AAPL, GOOG, CL, HON, PEP, TGT, AMZN, MDT, ABT, GS, BRK-A)
Word is out that the Dow Jones Indexes team is set to release the name of the replacement for General Motors (NYSE: GM) in the Dow Jones Industrial Average. We have heard that the new candidate will be announced today and also heard that the change may be announced early Monday. We have a list of stocks we believe are the most likely candidates, and a list of exclusions for several reasons. Again, this pertains to replacing GM, so if there are a series of index changes then some of the others could make it in that we feel are not as likely. Because the index is price-weighted rather than market capitalization-weighted, some of the would-be hopeful stocks are probably not really under consideration as members of the DJIA.
Ford Motor (NYSE: F) is a former DJIA component and makes the most sense as it is low-priced and is technically the last of the Big 3 that trades and is not teetering on the verge of bankruptcy. We just think the DJIA index team will probably want to be done with the US auto sector.
The two that make the most sense in the technology sector are Cisco Systems Inc. (NASDAQ: CSCO) or Oracle Corp. (NASDAQ: ORCL) as they are critical companies vital to business with low share prices that won’ create an index disruption. Apple Inc. (NASDAQ: AAPL) keeps coming up as a hopeful, but it would be the largest index member by far and would make IBM and it have about 23% of the combined index weighting. And ditto for Google Inc. (NASDAQ: GOOG). Its $400 share price is a massive hurdle, and frankly the company is to young in our minds to be up for consideration. These need to split before they are real candidates in our mind.
Colgate-Palmolive (NYSE: CL) technically fits the bill as a P&G or quasi-J&J. Honeywell (NYSE: HON) was a DJIA component before that many feel was unjustly booted from the index. That could be a candidate, although the Index Team might look wishy washy here if they put it back in this soon. PepsiCo. Inc. (NYSE: PEP) is an ideal candidate in food and beverages we think should have been added rather than Kraft Foods. PepsiCo is also actually larger in sales than Coca-Cola.
There is always the possibility that the pick could be from retail. Target Corp. (NYSE: TGT) could fit the bill, and we have even heard many make the guess that Amazon.com Inc. (NASDAQ: AMZN) could fit that bill. The index team might consider Amazon too much of a tech company, so we’d guess Target if the DJIA wanted another retail component to compete with Wal-Mart.
Medtronic (NYSE: MDT) and Abbott Laboratories (NYSE: ABT) both seem possible replacements on the surface, although there is already a large tie to healthcare and drugs in the DJIA 30 as is on a direct basis and even more if you consider the indirect basis with conglomerates. With healthcare being a wild card we would discount these picks unless there is a broader change with more index members getting the shuffle besides GM.
Goldman Sachs Group Inc. (NYSE: GS) is another longshot which some feel is ideal, but we think this would need to be part of a sweeping change in the index reading to be a real candidate. Mr. Dow also probably has enough financial companies in his ranks. The price today of $140+ would also make it the largest weighting of the 30 components by far.
Berkshire Hathaway, Inc. (NYSE: BRK-A) is one company many have hoped for in the past, but likely in discussion rather than in reality. Some consider it more of a manager or a fund than a company, and that massive share price makes it impossible to be considered for a membership in the DJIA.
There is another notion here that few have discussed and we have noted throughout. The DJIA could make a larger round of changes to the overall index above and beyond just one component. If that occurs, then any combination of these or other alternative stocks could become the new DJIA 30 members.
If GM truly goes into bankruptcy on Monday and if the stock truly does not trade for a period of 6 to 18 months, then the DJIA better hurry up and make this announcement sooner rather than later. Otherwise, we’ll all be talking some crazy price-weighted index called the Dow 29.
I was able to reach the Dow Jones Index team for comment, and all I was officially told from a spokesperson for team was the standard “No Comment.” Interestingly enough, when I asked if the calls on the subject had been steady, the team has been getting media inquiries and public inquiries on this matter of the DJIA member changes all day long.
JON C. OGG
MAY 29, 2009
Word is out that the Dow Jones Indexes team is set to release the name of the replacement for General Motors (NYSE: GM) in the Dow Jones Industrial Average. We have heard that the new candidate will be announced today and also heard that the change may be announced early Monday. We have a list of stocks we believe are the most likely candidates, and a list of exclusions for several reasons. Again, this pertains to replacing GM, so if there are a series of index changes then some of the others could make it in that we feel are not as likely. Because the index is price-weighted rather than market capitalization-weighted, some of the would-be hopeful stocks are probably not really under consideration as members of the DJIA.
Ford Motor (NYSE: F) is a former DJIA component and makes the most sense as it is low-priced and is technically the last of the Big 3 that trades and is not teetering on the verge of bankruptcy. We just think the DJIA index team will probably want to be done with the US auto sector.
The two that make the most sense in the technology sector are Cisco Systems Inc. (NASDAQ: CSCO) or Oracle Corp. (NASDAQ: ORCL) as they are critical companies vital to business with low share prices that won’ create an index disruption. Apple Inc. (NASDAQ: AAPL) keeps coming up as a hopeful, but it would be the largest index member by far and would make IBM and it have about 23% of the combined index weighting. And ditto for Google Inc. (NASDAQ: GOOG). Its $400 share price is a massive hurdle, and frankly the company is to young in our minds to be up for consideration. These need to split before they are real candidates in our mind.
Colgate-Palmolive (NYSE: CL) technically fits the bill as a P&G or quasi-J&J. Honeywell (NYSE: HON) was a DJIA component before that many feel was unjustly booted from the index. That could be a candidate, although the Index Team might look wishy washy here if they put it back in this soon. PepsiCo. Inc. (NYSE: PEP) is an ideal candidate in food and beverages we think should have been added rather than Kraft Foods. PepsiCo is also actually larger in sales than Coca-Cola.
There is always the possibility that the pick could be from retail. Target Corp. (NYSE: TGT) could fit the bill, and we have even heard many make the guess that Amazon.com Inc. (NASDAQ: AMZN) could fit that bill. The index team might consider Amazon too much of a tech company, so we’d guess Target if the DJIA wanted another retail component to compete with Wal-Mart.
Medtronic (NYSE: MDT) and Abbott Laboratories (NYSE: ABT) both seem possible replacements on the surface, although there is already a large tie to healthcare and drugs in the DJIA 30 as is on a direct basis and even more if you consider the indirect basis with conglomerates. With healthcare being a wild card we would discount these picks unless there is a broader change with more index members getting the shuffle besides GM.
Goldman Sachs Group Inc. (NYSE: GS) is another longshot which some feel is ideal, but we think this would need to be part of a sweeping change in the index reading to be a real candidate. Mr. Dow also probably has enough financial companies in his ranks. The price today of $140+ would also make it the largest weighting of the 30 components by far.
Berkshire Hathaway, Inc. (NYSE: BRK-A) is one company many have hoped for in the past, but likely in discussion rather than in reality. Some consider it more of a manager or a fund than a company, and that massive share price makes it impossible to be considered for a membership in the DJIA.
There is another notion here that few have discussed and we have noted throughout. The DJIA could make a larger round of changes to the overall index above and beyond just one component. If that occurs, then any combination of these or other alternative stocks could become the new DJIA 30 members.
If GM truly goes into bankruptcy on Monday and if the stock truly does not trade for a period of 6 to 18 months, then the DJIA better hurry up and make this announcement sooner rather than later. Otherwise, we’ll all be talking some crazy price-weighted index called the Dow 29.
I was able to reach the Dow Jones Index team for comment, and all I was officially told from a spokesperson for team was the standard “No Comment.” Interestingly enough, when I asked if the calls on the subject had been steady, the team has been getting media inquiries and public inquiries on this matter of the DJIA member changes all day long.
JON C. OGG
MAY 29, 2009
