WASHINGTON, September 10, 2013 – In what some consider a long overdue change in the composition of the venerable Dow Jones Industrial Average (DJI), S&P Dow Jones Indices stated Tuesday that it would drop its three current lowest-priced stocks—Bank of America (BAC), Hewlett-Packard (HPQ) and Alcoa (AA)—from its current list of thirty large-cap stocks. Replacing them will be credit card giant Visa Inc. (V), investment banking kingpin Goldman Sachs Group Inc. (GS), and multi-billion dollar sneaker manufacturer Nike Inc. (NKE).
Effective at the opening bell on September 23, the move marks the first triple-play change to the index since April 8, 2004. The most recent change in the DJI was last year’s removal of Kraft Foods (KFT) from the index when it split into two separate companies, KFT and spinoff snack standalone Mondelez International Inc. (MDLZ). The original KFT was replaced by health insurer UnitedHealth Group Inc. (UNH).
As always when the DJI’s lineup is changed, the addition of historical data and stats on the new members and the removal of the old will be factored in, so the changes should not disrupt the overall average in the short term.
Reasons for the change are the usual ones, involving company size and capital weighting. Bank of America, Hewlett-Packard, and Alcoa have suffered from significant drops in business since the 2007-2009 financial debacle, while the new additions to the average continue to experience robust growth.
Aluminum producer Alcoa in particular has been moribund for years. The deletion of AA and the two other stocks may have the effect of making the DJI more representative of America’s largest companies over time.
These changes ultimately matter to the DJI, as it is a price-weighted index, which means its value is based on the price of a company’s stock rather than its market value.
AP notes that General Electric Co. (GE) is now the only original member remaining in the Dow. The industrial giant was briefly delisted but has stayed in the index since its reinstatement in 1907.
Charles H. Dow created the index with the intention of giving the stock market credibility and making investing more understandable. The original Dow Jones industrial average had 12 members and was published May 26, 1896. It featured companies such as American Cotton Oil, Chicago Gas and U.S. Rubber.
–AP contributed to this report
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