GM: Out of the Dow

We finally get the answer to the question we have been asking since 2007: When will GM get kicked out of the Dow?

The editors at Dow Jones are now hinting what everyone else already knew: GM is going to be replaced in the Dow Jones Industrial Average — and replaced sooner rather than later.

John Prestbo, an editor and executive director of Dow Jones Indexes, said “There are two choices for GM: bankruptcy or increased government ownership. Both of those events are negative for continued membership in the Dow. Definitely the trend is in the direction that would force us to remove it. I’m not going to say absolutely.”

While GM is not yet officially out, it is only a matter of time.

My bet for its replacement is Cisco (CSCO). As hard as it may be to believe in 2009, this internet thingie, which I think will be big one day, is not represented in the DJIA index. Cisco is a manufacturer who makes all of the plumbing for the net.

The closest thing to an internet company in the index is Verizon (VZ), whose market share in the net is relatively small, and whose income from internet related activities is even smaller.

There’s less risk in a pick like CSCO than say a Yahoo! which is no longer in ascendancy, or a Google, which could be perceived as a one trick pony by the Dow index editors.  I doubt we want any more financials in there (i.e., Master Card ro Goldman Sachs) as we have 4 already). And as much as I have been a Mac guy my whole life, I seriously doubt the editors at DJ are ready to “Think Different.”

Tom Petruno at the Money & Co blog of the LA Times noted this clever reader suggestion:

How about [adding] the U.S. government? They make cars, money, insure, provide mortgages, invest in securities, provide rail transportation, health insurance. You know, a real all-around company.

Good stuff, Tom!


When Does GM Get Kicked Out of the DJIA? (November 7th, 2007)

When Does GM Get Kicked Out of the Dow, part II (June 26th, 2008)

GM Faces Ouster From Dow as Automaker Mulls 60 Billion Shares Share
Eric Martin
Bloomberg, May 7 2009

Got an idea for a Dow stock? GM may get booted soon
Tom Petruno
LATimes, May 6, 2009

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