It doesn't happen often, but when it does, it makes for rather big headlines. What we are referring to are the infrequent composition changes in the 30-stock Dow Jones Industrial Average. The latest changes in the Dow components, which will take effect at the close of trading on September 20th, represent the biggest shakeup in that 30-stock index in almost a decade.
Specifically, Alcoa Inc.
– Free Alcoa Stock Report
), Bank of America
- Free BofA Stock Report
), and Hewlett-Packard
- Free H-P Stock Report
) will be leaving the blue chip index, while Nike Inc.
), Goldman Sachs Group
), and Visa Inc.
) will be taking their places.
Officially, Alcoa, the giant aluminum maker and a Dow component for 54 years, will be replaced by athletic gear maker Nike; banking giant Bank of America, a Dow member for only five years, will be replaced by investment banking behemoth Goldman Sachs, and the place of Hewlett-Packard, a Dow issue for more than a decade and a half, will be taken by payments company Visa.
According to a press release from Dow Jones, the composition changes ''were prompted by the low stock price of the three companies slated for removal and the Index Committee's desire to diversify the sector and industry group representation of the index.'' Also, the three companies being removed have been market laggards for a number of years, especially Alcoa and Bank of America. Hewlett-Packard, too, has seen its stock sink in recent years, although, ironically, it has been the index's best performer for much of this year.
All told, this is the Dow's biggest adjustment since 2004, when a trio of erstwhile Dow stocks likewise were removed. Numerous single-company adjustments have taken place in the interim. Importantly, today's announced changes will make for bigger moves for the price-weighted index, considering the better than $150-a-share price tag on both Goldman and Visa, and the $65-a-share quotation of Nike. By comparison, Alcoa stock closed at just over $8.00 a share yesterday, while Bank of America is now priced at $14.48 a share, and Hewlett-Packard stock is changing hands at $22.36.
Finally, we think these moves are constructive, especially the adjustments involving the trio of stocks that are leaving the Dow, as their collective struggles have suggested that they were not currently the best fit for this blue chip index. At the time of this article's writing, the author did not have positions in any of the companies mentioned.