There is talk around the ol’ internet watercooler that General Motors and Citigroup are about to be kicked off the Dow Jones Industrial Average due to their lackluster performance and long term outlook. Both of the companies stocks are trading around a $1 with Citigroup taking the title of the first stock to be traded on the index as a penny stock. Since the Dow follows 30 of the largest and most widely held public companies in the United States, would Apple (AAPL) and Google (GOOG) take GM and Citigroup’s place if they are removed?
General Motors is the longest continuous fund on the Dow Jones with a 1925 induction date, but the stock has never traded this low related to the overall market; even after the Dow Jones saw mini-crash in 1988. Citigroup was added in 1997 under the name Travelers Group but more recently been part of the US meltdown. While both companies probably represent Americans’ financial outlook accurately, the two companies simply do not meet the basic guidelines for a Dow Jones stock.
The Dow Jones Industrial Average generally is comprised of 30 of the most influential companies which properly provide a cross section of America’s industries. The Dow’s traditional requirements of size and volume doesn’t fair well for both GM and Citigroup in their current state. Both of the companies have lost incredible volume as their collective industries have collapsed, where companies such as Apple and Google have maintained reasonable growth and valuation.
Obviously nothing has been confirmed Dow Jones yet and Apple / Google are not the only possible companies that might replace whoever gets removed from the index. There are numerous other counter-cyclical companies that are surviving and growing in this rescission but Apple and Google are two of the favorites swirling around today. Nevermind the fact that neither company fits the traditional Dow Jones Industrial profile.
Some might say that the Dow Jones, with the limited amount of funds to track, is inaccurate and insignificant compared to the reach of the S&P 500. But still, it is the Dow that most Americans know and follow. Plus, there is a certain amount of prestige having a stock listed on the 2nd oldest index, but both GM and Citigroup have more pressing issues than their Dow Jones status.
[img from nytimes]