Dow Jones Industrial Average
Friday Goldman Sachs, Nike and Visa replaced Alcoa, Bank of America and Hewlett Packard in the Dow Jones Industrial Average.
Since 1885, the DJIA has been a mainstay index of the stock market. Though comprised of thirty stocks, this index is the most widely quoted in the news media. Changes in the DJIA are not frequent with six prior changes since 2008 and 16 stocks being in the index for over twenty years.
Theadded companies don’t seem as important as what they signify. Each stock represents a dominant company in a dominant industry, according to the custodians of the index. These are the bluest of the blue chips. There are no newly formed companies, no small companies, no thinly traded companies, no high risk type of companies and very few that do not pay dividends.
The latest change seems to indicate that our largest aluminum manufacturer; a bank with over 53 million customers and 5500 branches that also own Merrill Lynch; and the largest personal computer and printer manufacturer with one of the largest consulting businesses are either no longer representative of the economy as a whole or are in industries that are now overcrowded based on the current state of the economy. The new members represent banking but the investment and financing sector… rather than retail, mortgages andcredit card usage by over 2 billion people in 200 countries and leisure, sports fashion and retail. These changes and the trends they represent need to be considered for the new market place. Bank of America was added in 2008 and its removal recognizes a quick change in the finance sector.
In my opinion, the DJIA is weak in some areas such as web-based sales, tablets, mobile communications and search engines but are a reasonable representation of the economy as a whole.
While the DJIA is an American index, most of the companies have large percentages of sales, operations, profits, assets and cash outside of the United States, and I find this as reflective of international activity, as translated into US$.
The DJIA trades at a P/E of about 14 with a dividend yield of about 2.4% and has the following thirty components: 3M Co, American Express, AT&T, Boeing, Caterpillar, Chevron, Cisco, Coca-Cola. E. I. du Pont de Nemours, Exxon Mobil, General Electric, Goldman Sachs, Home Depot, Intel, IBM, Johnson & Johnson, JPMorgan Chase, McDonald’s, Merck, Microsoft, Nike, Pfizer, Procter & Gamble, Travelers Companies, United Technologies, UnitedHealth, Verizon, Visa, Wal-Mart and Walt Disney Co.
