Alcoa Inc. (AA), Hewlett-Packard Co. (HPQ) and Bank of America
Corp. (BAC) will be dropped from the Dow Jones Industrial Average
next week, in the biggest shakeup of the 30-stock index in almost a
decade.
Alcoa, a Dow component for 54 years, will be replaced by
athletic-gear maker Nike Inc. (NKE). Payments company Visa Inc. (V)
will replace H-P, which joined the index in 1997, and securities
firm Goldman Sachs Group Inc. (GS) will supplant Bank of America,
which spent five years in the blue-chip benchmark.
The changes, which will take effect with the close of trading
Sept. 20, reflect the companies' sliding fortunes and their
declining share prices, S&P Dow Jones Indices LLC, the company
that oversees the Dow, said in a statement.
The 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," the statement said.
S&P Dow Jones Indices is a unit of McGraw Hill Financial
Inc. (MHFI). CME Group Inc. (CME) and Dow Jones & Co., a unit
of News Corp (NWSA) that publishes The Wall Street Journal, own
stakes in S&P Dow Jones Indices.
While their performance has been mixed this year--H-P is up more
than 50%, while Alcoa is down almost 7%--all three departing stocks
have underperformed the broader stock market in recent years.
Shares of New York aluminum maker Alcoa closed Monday at $8.08,
down from $40 as recently as 2007. H-P, the Palo Alto, Calif.,
computer maker, ended at $22.36, down from $50 in 2010. Bank of
America, of Charlotte, N.C., was at $14.48, down from $50 in
2007.
S&P Dow Jones said the moves won't have any effect on the
level of the index, which at a recent 15063.12 is up 15% for the
year and just 3.8% below its Aug. 2 all-time high.
The Dow is a price-weighted index, meaning the bigger the stock
price, the larger the sway for a particular component--and vice
versa. That is different from most other indexes, such as the
Standard & Poor's 500-stock index, which are weighted by
components' market capitalizations.
The Dow move is the biggest since April 2004, when American
International Group Inc. (AIG), Pfizer Inc. (PFE) and Verizon
Communications Inc. (VZ) replaced AT&T Corp., Eastman Kodak Co.
and International Paper Co. (IP).
Numerous changes have taken place since. A year ago, insurer
UnitedHealth Group Inc. (UNH) replaced Kraft Foods Inc., as the
global snacks company moved toward a spinoff of its North American
grocery business. The committee that determines the blue-chip
average's makeup said Kraft's reduced size made it unfit for the
blue chips.
In June 2009, Citigroup Inc. (C) was replaced by insurer
Travelers Cos. (TRV), and General Motors Corp. was supplanted by
networking company Cisco Systems Inc. (CSCO).
Citigroup was recovering with U.S. government assistance from a
brush with death during the financial crisis, and General Motors
had just filed for bankruptcy. A successor company, General Motors
Co. (GM), emerged from bankruptcy the next month.
In September 2008, Kraft Foods joined the Dow, replacing AIG
following the government's decision to take a 79.9% stake in the
insurance giant. That February, Bank of America and Chevron Corp.
(CVX) had replaced Altria Group Inc. (MO), formerly known as Philip
Morris Cos., and Honeywell International Inc. (HON).
Write to Colin Barr at colin.barr@wsj.com
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