DOW Components Change

CNBC/Bloomberg ^ | April1,2004 | CNBC/Bloomberg

[BenLurkin]

Just announced on CNBC and Bloomberg Financial television:

AT&T and International Paper have been dropped form the Dow Average.

Verizon and AIG to be added.

Effective April 8th.

[BenLurkin]

No, but those 1,000 shares I have of Ajax Buggy Whips will come back someday . . . I just know it.

[FRgal4u]

This is not good !

At least for those new Dow entries..

Last time Dow add MSFT, HD, SBC, INTC in 1999..

all these stock went south after the entry!

The ones got the boot last time were

Sears
Chervon
Union Carbide
Goodyear Tire

of the four, Chervon merged with Texaco - CVX is one of the best performers between 1999 and 2004.

Sears - not bad
Union Carbide - merged with DuPont (I think)
Goodyr tire - this is a laggard, still is a dog..

they kick IP, EK, and T out

all very high dividend yield plays,

may serve well to play the opposite game here

buy the kickout[s], short the entries..

jmho.

[TexasGunLover]

In the case of Kodak coming off, their problems started years ago. They reacted too little, too late to Fuji, diversified in questionable directions (e.g. Sterling Drug) that hurt them for years. Look to EK Management and yes, some of the workers, for their problems.

Kodak has missed a lot of opportunities over the years. Additionally, Eastman Chemical (which Kodak spun off a few years ago) has also gone through a period of horrible leadership and is on the brink as well.

[BenLurkin]

"Average:
An arithmetic mean return of selected stocks intended to represent the behavior of the market or some component of it. One good example is the widely quoted Dow Jones Industrial Average, which adds the current prices of the 30 DJIA stocks, and divides the results by a predetermined number, the divisor."

"Dow Jones Industrial Average
The best known U.S. index of stocks. A price-weighted average of 30 actively traded blue-chip stocks, primarily industrials including, stocks that trade on the New York Stock Exchange. The Dow, as it is called, is a barometer of how shares of the largest U.S. companies are performing. There are hundreds of investment indexes around the world for stocks, bonds, currencies, and commodities."

SOURCE: Yahoo Finance

[Steven W.]

that's just because of the tendency for traders to start buying the new entries TODAY on the announcement and, then, sell them right after the index adjustment occurs.

As for prior question re "Industrials", the DOW has traditionally sought to reflect the overall US economy as a whole - thus these changes reflect the greater focus expected on healthcare (ie Pfizer) vs. commodities (ie IP). Verizon replacing AT&T is simply a case of one communications with good balance sheet and strong prospects replacing a poorly performing and long overdue one. Everybody knows why EK is out (the no-brainer of the bunch) and AIG, of the six involved, was the only one I wasn't previously certain of.

[Wright is right!]

"Who would have ever thought that we would see AT&T removed from the DOW? Seems sad to me."

AT&T barely resembles the giant it once was. Before Divestiture, AT&T owned all the long lines (long distance), all the local Bell companies, the Western Electric manufacturing arm, and every last phone in the country. AT&T spun off manufacturing long ago to Bell Labs Lucent, which further divvied itself up in the 90's, spinning off its Enterprise unit to Avaya and making Lucent primarily a maker of Central Office switches. AT&T now consists only of a long-distance fiber and microwave carrier and a cellphone unit, and they're merging that away as we speak. There's really not all that much left of a once-proud company. And soon there won't be ANYTHING left of them, because they still have that Al Qerry arrogance about them.

I'm into this kind of stuff because the company I own sells Avaya phone switches and systems.

Michael

[Moonman62]

I can understand why Wal-Mart and McDonald's are on the list. Because the DOW is supposed to be an indicator of industrial activity,

The DOW is supposed to be the biggest companies that are representative of the overall economy. It's components are privately determined. The "Industrials" moniker is a holdover from many years ago, obviously. On that note, do you know why the hammer and sickle was on the Soviet flag?

[BenLurkin]

SBC has been gliding down for about two years.

Has lost about half its value IIRC.

When I heard about a change in the DOW I was expecting SBC to go out.

[Alberta's Child]

On that note, do you know why the hammer and sickle was on the Soviet flag?

Beats the hell out of me. Because U.S. Steel and Archer Daniels Midland paid for the proprietary rights to the Soviet flag?

[Fury]

Kodak has missed a lot of opportunities over the years. Additionally, Eastman Chemical (which Kodak spun off a few years ago) has also gone through a period of horrible leadership and is on the brink as well.

Wow, weren't they doing OK in the mid 90's with Ernie Davenport as CEO? I have not followed them at all.

I do know some of the workers that worked at EK. They bashed the company but admitted that they were routinely taking 2-3 hour lunches, leaving early, in the "good old days". EK got fat, dumb and happy - and now they are paying for it.

[Big Guy and Rusty 99]

Verizon = AT & T

same as it ever was, same as it ever was.

[Alberta's Child]

Same . . . as . . . it . . . ever . . . was.

(Hey, look where my hand was.)

[djf]

It has to do with where the money is flowing in the economy, loosly, from a manufacturing perspective. That's why they add drug companies to it, because an aging population spends more on drugs.

Pretty soon, the manufacturer of DEPENDS undergarments will be listed, and will be heralded as a resurgence of the American textile industry.

[Woodman]

There are many components to the Dow. The average you are thinking of is the Dow Jones Industrial Average. There are others such as Utilities etc.

[PatrickHenry]

buy the kickout[s], short the entries.

There's a well-known phenomenon involving index funds and the Dow. They have to dump the stocks that are no longer in the average and replace them with the newly-added stocks. I assume this is generally anticipated, so there would be a runup in the price of a new addition, well ahead of the announcement, and then a general calming down.

[BenLurkin]

They do seem pretty similar at first glance:

"Verizon Communications Inc. is engaged in the provision of communications services. Verizon companies are providers of wireline and wireless communications in the United States, with 135.8 million access line equivalents and 32.5 million wireless customers.

The Company is also a directory publisher.

Its global presence extends to 32 countries in the Americas, Europe, Asia and the Pacific through four segments: domestic telecom, which serves a territory consisting of 135.8 million access line equivalents in 29 states and the District of Columbia; domestic wireless, which provides wireless voice and data services, paging services and equipment sales in the United States; international, which includes international wireline and wireless communications operations and investments in the Americas, Europe, Asia and the Pacific, and information services, which is engaged in print and online directory publishing and is a content provider for electronic communications products and services."

AT&T Corp. is engaged in providing voice and data communications services to large and small businesses, consumers and government entities. AT&T and its subsidiaries furnish domestic and international long distance, regional, local and Internet communications services.

The Company's primary lines of business are AT&T Business Services and AT&T Consumer Services. AT&T Business Services offers a variety of global communications services to over four million customers, including large domestic and multinational businesses, small and medium-sized businesses and government agencies.

AT&T Consumer Services is a provider of domestic and international long distance and transaction-based communications services to residential consumers in the United States."

But I think a closer look might reveal something fundamentally different in each company's business 'paradigm'.

SOURCE: Yahoo Finance

[AntiGuv]

But I think a closer look might reveal something fundamentally different in each company's business 'paradigm'.

One makes money; the other doesn't? ;^)

[rightcoast]

http://www.djindexes.com/downloads/DJIA_Hist_Comp.pdf

The Dow Jones Industrial Average (DJIA) began on July 3, 1884, with the following companies comprising the index:

Chicago & North Western (railroad)
Delaware, Lackawanna & Western (railroad)
Lake Shore (railroad)
Louisville & Nashville (railroad)
Missouri Pacific (railroad)
New York Central (railroad)
Northern Pacific pfd. (railroad)
Pacific Mail (steamship)
St. Paul (railroad)
Union Pacific (railroad)
Western Union (communications)


The first true "all industrial" DJIA came on May 26, 1896:

American Cotton Oil
American Sugar
American Tobacco
Chicago Gas
Distilling & Cattle Feeding
General Electric
Laclede Gas
National Lead
North American
Tennessee Coal & Iron
U.S. Leather pfd.
U.S. Rubber


General Motors was added to the DJIA on March 16, 1915:

Almagamated Copper
American Car & Foundry
American Smelting & Refining
American Sugar
Central Leather
General Electric Company
General Motors Corporation
National Lead
Peoples Gas
U.S. Rubber
U.S. Steel
U.S. Steel pfd.


The DJIA list remained the same from March 14, 1939 until July 3, 1956:

American Smelting
American Telephone & Telegraph
American Tobacco B
Bethlehem Steel
Chrysler
Corn Products Refining
Du Pont
Eastman Kodak Company
General Motors Corporation
Goodyear
International Harvester
International Nickel
Johns-Manville
Loew's
National Distillers
National Steel
Standard Oil of California
Standard Oil (New Jersey)
Texas Company
Union Carbide
United Aircraft
U.S. Steel
Westinghouse Electric
Woolworth


By June 29, 1979, the DJIA had changed slightly to include:

Allied Chemical
Aluminum Company of America
American Can
American Telephone & Telegraph
American Tobacco B
Bethlehem Steel
Du Pont
Eastman Kodak Company
Exxon Corporation (nee Standard Oil, NJ)
General Electric Company
General Foods
General Motors Corporation
Goodyear
Inco (nee International Nickel)
International Business Machines
International Harvester
International Paper Company
Merck & Company, Inc.
Minnesota Mining & Manufacturing
Owens-Illinois Glass
Procter & Gamble Company
Sears Roebuck & Company
Standard Oil of California
Texaco Incorporated (nee Texas Company)
Union Carbide
United Technologies Corporation (nee United Aircraft)
U.S. Steel
Westinghouse Electric
Woolworth


By January 27, 2003 the DJIA index was comprised of:

3M Company (nee Minnesota Mining & Manufacturing)
Alcoa Incorporated (nee Aluminum Company of America)
Altria Group, Incorporated
American Express Company
AT&T Corporation (nee American Telephone & Telegraph)
Boeing Company
Caterpillar Incorporated
Citigroup Incorporated
Coca-Cola Company
DuPont
Eastman Kodak Company
Exxon Mobil Corporation (nee Exxon Corporation)
General Electric Company
General Motors Corporation
Hewlett-Packard Company
Home Depot Incorporated
Honeywell International Inc.
Intel Corporation
International Business Machines
International Paper Company
J.P. Morgan Chaase & Company
Johnson & Johnson
McDonald's Corporation
Merck & Company, Incorporated
Microsoft Corporation
Procter & Gamble Company
SBC Communications Incorporated
United Technologies Corporation
Wal-Mart Stores Incorporated
Walt Disney Company

[rightcoast]

http://quote.bloomberg.com/apps/news?pid=10000006&sid=a0IrOjl2YuAw&refer=home

Update: "American International Group Inc., Verizon Communications Inc. and Pfizer Inc. will be added to the Dow Jones Industrial Average, Dow Jones & Co. said.

Eastman Kodak Co., International Paper Co. and AT&T Corp. -- the average's three smallest companies by market value -- will be removed from the 107-year-old benchmark. The changes will be effective with the opening of trading on April 8, Dow Jones said in a news release."

[BenLurkin]

Excellent post rightcoast. Thank you.