Goldman Sachs Group Inc., Visa Inc. and Nike Inc. will be added to the Dow Jones industrial average, replacing Bank of America Corp., Hewlett-Packard Co. and Alcoa Inc. in the biggest reshuffling since April 2004.
The changes will push the number of financial-related companies in the 30-member gauge to five and raise their influence even more, as the fifth biggest U.S. bank by assets and the largest payment network join JPMorgan Chase & Co., Travelers Cos. and American Express Co on the average.Bank of America is being kicked out even after rising 109 percent in 2012, the Dow’s largest gain. The changes will take effect for the start of trading Sept 23.
Stocks are chosen for the average by a committee that includes editors of the Wall Street Journal; most indexes maintained by S&P Dow Jones are picked through an objective, rules-based process. While changes in membership are unusual, they often involve more than one company at a time, according to Dow’s guidelines.
“The Dow is going to look and act very differently going forward,” Dan Greenhaus, a strategist at BTIG LLC, said in a note to clients. Because the Dow average weights stocks by share price, “Visa would become the second most important stock in the index and Goldman Sachs the third most important,” he said.
S&P Dow Jones Indices, which administers the average, is ejecting the three members with the lowest price. Unlike the S&P 500, which apportions members according to market value, the Dow average is price weighted, meaning influence is tied to the level of individual shares. The methodology has been a barrier to inclusion of stocks such as Apple Inc. and Google Inc., which trade above $500 and would dominate the measure.
“We are pleased to join this historic and significant market benchmark,” Goldman Sachs spokesman Michael DuVally said in an emailed statement.
The Dow average was devised in 1896 by Charles H. Dow, co-founder of Wall Street Journal publisher Dow Jones & Co. It originally included General Electric Co., American Tobacco and 10 other companies before expanding to 20 companies in 1916 and 30 in 1928.
The average was last re-shuffled in September 2012, when United Health Group Inc. replaced Kraft Foods Inc., which spun off its North American grocery business.
Alcoa, the largest American aluminum producer, is being removed after plunging more than 80 percent since its 2007 high and seeing its debt-rating cut to speculative grade this year - making it the second junk-rated Dow Jones industrial average company in at least three decades. Trading around $8, it has the smallest influence on the average.
Monica Orbe, a spokesman for Alcoa, was not immediately available to comment.
Hewlett-Packard, which took an $8.8 billion write down related to its acquisition of Autonomy Corp. in November 2012, has declined for three straight years. At $22, it is the average’s third-smallest stock. Its trailing 12-month revenue plummeted the most in more than a decade last fiscal quarter, according to data compiled by Bloomberg.
Howard Clabo, a Hewlett-Packard spokesman, did not immediately respond to messages seeking comment.
Even with its 2012 gain and a 25 percent advance this year, Bank of America, the second largest U.S. lender, remains more than 70 percent below its high of $54.90, reached in November 2006. Two people with direct knowledge of its plans said Monday that the company will eliminate about 2,100 jobs and close 16 mortgage offices as rising interest rates weaken loan demand.
In 2004, American International Group Inc., Verizon Communications Inc. and Pfizer Inc. were added to the Dow average, reflecting the growing importance of finance and health care to the U.S. economy and stock market. Eastman Kodak Co., International Paper Co. and AT&T Corp., the average’s three smallest companies by market value, were removed.
Business, Pages 27 on 09/11/2013