S&P 500: -12.14 (-1.32%)
Who will replace GM in the Dow Jones Industrial Average?
GM’s place in the Dow is, by no surprise, in jeopardy. It represents only 0.2 percent of the price-weighted measure used by the Dow, which makes GM as important to the Dow as Ryder System Inc is to the S&P 500. (Click here for the list of Dow companies)
John Prestbo, executive director of Dow Jones indexes, said yesterday: “There are two choices for GM: bankruptcy or increased government ownership. Both of those events are negative for continued membership. Definitely the trend is in the direction that would force us to remove it.”
So if GM is out, who is in? According to the Dow Jones website, the Dow is intended to “provide a clear, straightforward view of the stock market and, by extension, the U.S. economy.” This would make Ford Motors a logical choice so that the index maintains its exposure to the auto industry, but this seems unlikely given Ford’s still-low share price ($6.26).
After glancing at some companies with big market caps and ruling out all financials – there are already four in the Dow and the timing would be rather inappropriate – it seems that Apple, Cisco Systems, or Google would be the logical choices. Broadly speaking, Apple gives the index more consumer exposure, Cisco Systems gives the index exposure to the internet, and Google gives exposure to advertising.
FedEx or UPS could get the call since both stocks are considered to reflect the overall health of the economy. Another possibility would be Lockheed Martin, which would give the index more exposure to the defense sector and government spending – maybe they should just add the U.S. Treasury to the Dow.
Of course, Citigroup could become a candidate for removal if the government ends up with a controlling stake in the bank making the options more interesting – Wells Fargo or Goldman Sachs could suddenly become candidates.
What do you think?
Quick Hits
- GE to Spend $6 Billion on Health Care by 2015, Double Research
- The Preferred Answer to Stress Tests
- Still Waiting for Stock Picking
Peter Lazaroff, Junior Analyst
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