Replacing AIG in the Dow: Google? Cisco? Apple? 14 comments
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Now that AIG (AIG) is public property, I wonder who will replace the stock in the Dow Jones Industrial Average [^DJI].
My choice: The Federal Reserve. Barring that, the Bank of China.
Over the years, the Dow has made many adjustments, but I can’t ever recall a stock being pulled because it nearly went under. AIG was added to the index in April 2004 and from the get-go, it was a drag on the Dow. In fact, the last few additions haven’t helped much.
One word to add: The Dow is price-weighted which means that a stock's weighting in the index is solely based on its price, no matter how many shares outstanding there are. To find out the index level, just add up the prices of the 30 stocks and adjust by a divisor (roughly multiply the sum of the stocks by eight).
It’s an antiquated measure, but it’s got quite a nice brand name after 112 years in business. Personally, I prefer the S&P 500 [^SPX] and that’s what I use for comparisons with my Buy List.
The last change to the Dow came in February when Bank of America (BAC) and Chevron (CVX) replaced Altria (MO) and Honeywell (HON). Since changes are pretty infrequent, I hope the gatekeepers make a few more changes along with booting AIG. I’d vote to remove Alcoa (AA) and General Motors (GM). GM is frankly an embarrassment to the index.
So what should the new stocks be? I’d say the front-runners are Google (GOOG), Cisco (CSCO) and Apple (AAPL). Here’s a list of mega-cap stocks that aren’t currently in the Dow and their market caps (in billions).
Google..............................$139.3
Cisco.................................$134.5
Apple................................$123.9
Wells Fargo.......................$115.6
Pepsi.................................$114.2
Philip Morris.......................$110.8
ConocoPhillips....................$109.8
Schlumberger.....................$104.2
Oracle.................................$97.8
Abbott Labs.........................$92.2
Qualcomm............................$78.6
Amgen.................................$69.7
UPS......................................$69.4
I’d also make a case for a stock like UPS (UPS). It’s not the biggest, but its business is probably a better reflection of the larger economy than many bigger stocks.
On a side note, little changes to the Dow can have major impacts. The editors of the Wall Street Journal changed the index in 1939 by tossing out IBM (IBM). They added it back in 1979. In those 40 years, IBM gained 22,000%. If the editors had left it in, the Dow would be about 35% higher than where it is now. All the historical benchmarks would be different. The Dow would have cracked 1,000 in 1961 instead of twelve years later.
Behold the power of one really good stock.
Disclosure: None
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This article has 14 comments:
We should stick and stay on all manufacturing companies with bright business future where they are the main source of supporting the now a day financial markets and they have a very solid market capital.
Can we say 125? 120? 115? 110? 100?
We need some hard math to shed some light on the subject.
Will they be bad ? Will AAPL be losing money in Q4 ?
Maybe you have your own definition of bad.
I would like to have a bad income like AAPL.