The Dow Jones Industrial Average isn't considered the most
accurate reflection of the market's overall performance, but few
can argue against the fact that it is the most widely recognized
and highly symbolic representation of the state of American stocks.
Outside of the large-cap, old-line American companies among the Dow
Jones Industrials, there are more than 10,000 publicly traded
stocks from which investors can pick and choose. But Dow component
companies carry the panache of selling a "blue-chip" stock
investors might regard as part of an elite grouping worthy of their
Since Charles Dow introduced his 12-stock industrial
in 1896 to accompany The Wall Street Journal's transportation
index, about four-dozen adjustments have been made, including the
expansion to a roster of 30 in 1928. Most of the original dozen
have gone the way of the buggy whip and are out of business, or
morphed into another direction in the past 114 years. One familiar
General Electric (
-- however, the
was yanked twice around the beginning of the 20th century, only to
It has been more than a year since the Dow was rejiggered, when
Cisco Systems (Nasdaq: CSCO)
Travelers Cos. (
replaced the bankrupt old General Motors and
. There's no set pattern for reviews of the composition of this
price-weighted index, but maybe it's time for the committee members
appointed in March to consider jettisoning the weakest links and
bringing in some fresh blood.
In the meantime, it's worthwhile to speculate about which
lightweights among the heavyweights could be jettisoned in the next
. Such a focus could provide clues as to which stocks to avoid --
or short -- and which to hold for the long haul.
Almost from its launch, the Dow has contained stocks of companies
not purely "industry" in a traditional smokestack sense. So which
stocks are most vulnerable to be dethroned from this small subset
of the U.S. stock market?
What does the stock of
American Express (
offer to investors that a
transitions from selling and servicing big iron to going big on
business services, and
Microsoft (Nasdaq: MSFT)
dawdles along in the slow lane of technology's innovation highway,
is it time to substitute a Nasdaq-traded
Apple (Nasdaq: AAPL)
Google (Nasdaq: GOOG)
Although GM is gone, should the American auto industry be ignored,
considering the renaissance of
Ford Motor (
? Or, when the new GM pulls the trigger on its expected
, will it deserve to be called a blue-chip once again?
If the keepers of the Dow do decide to make changes, there is one
stock I think is especially in danger of being tossed.
The most vulnerable stock on the Dow
Perhaps the most vulnerable member is
. Shares peaked just north of $40 back in 1999, there hasn't been a
since 2000, and it hasn't approached that $40 level since 2007.
Admittedly, 2010 second-quarter results, which included a $136
million profit on stronger-than-anticipated +22% revenue growth,
gave rise to a more bullish outlook, especially when it comes to
predictions of growth in global demand for its metals. Still, 10 of
First Call/Thomson Financial's 19 analysts rated the stock a "hold"
or lower, with one saying it's time to sell.
Alcoa, part of the Dow since 1959, is one of those old standbys, a
favorite for retirees to hold on to and pass to the kids. But
lately, the stagnant stock price since the 2008 meltdown and a
of 12 cents a year combined with fiscal 2010 earnings estimated at
less than 50 cents a share should serve as a wake-up call.
Aggressive investors might find better places to park their cash as
stocks continue to fight their way out of the doldrums.
A company such as Alcoa is highly dependent upon the economic
recovery, not just in the U.S., but worldwide. So far, with the
recent gloomy economic forecasts, it could take some time before
investors again take a shine to Alcoa's shares.
If there's a weak link in the Dow's representation of the overall
stock market, Alcoa comes closest. It's an old-line manufacturer
struggling to recapture the spirit of innovation for which it was
once known. Erase this one and pencil in other names such as Apple
or Google, which might better portray what is American "industry"
of the 21st century.