Dow 30 Shakeup: Did They Make the Right Pick? - Real Time Insight
17 Septembre 2012 - 12:10PM
Zacks
The Dow Jones Industrial Average, arguably the most famous and
oft-quoted benchmark of American stock performance, will be
swapping one of its components in one week’s time. The index will
be removing Kraft Foods (KFT) and putting in
UnitedHealth Group (UNH), the largest firm by far
in the ‘accident & health’ segment of the insurance
industry.
The move comes as Kraft looks to split up into two firms with
one focused on the grocery business, and the other zeroing in on
the snacks business under the absurd name of ‘Mondelez’. The
removal of Kraft also marks one of the shortest time periods ever
on the Dow, as the food company was added in just 2008 in order to
replace the plummeting AIG.
However, some are disappointed by the move to include UNH over
other companies, with a few looking for the DJIA to include GOOG or
AAPL instead. Unfortunately, these have their own issues, as their
lofty share price would distort the price-weighted benchmark,
forcing the index managers to look elsewhere.
Still, many are asking why another health care-focused firm?
While it is true that the company operates in a different segment
than other index components like JNJ or
PFE, it is still, arguably, in the broader health
care sector. Clearly the health care segment is growing in
importance to the broader American economy, but there are other
choices that could have also been deserving of inclusion in the
index.
After all, the benchmark is designed to be a broad barometer of
the American stock market. How many health care and financial firms
do we need to accomplish that?
It isn’t like there aren’t a number of other possible choices
out there as reports suggest that half a dozen firms were
considered before UNH was eventually chosen. Personally, I think
some of the following firms /segments could have made for
interesting selections at this time:
- Transports - Where are all the transportation
stocks in the index? How about adding Union Pacific
(UNP), Federal Express (FDX), or
UPS?
- eBay (EBAY) - Yes it is a little ‘old school’
in terms of tech, but it is at a decent price point and its PayPal
service is increasingly important to the American economy. Plus,
the company is pretty big with a roughly $65 billion market
cap.
- Monsanto (MON) - True, we already have
DD in the index, but Monsanto arguably offers a
different large cap play on the chemicals segment. This is
especially true given the growing crop crisis and the importance of
feeding an ever growing population.
- Mining - With commodity prices surging once
again, wouldn’t it be appropriate to think about including a firm
like Freeport-McMoRan (FCX) or Newmont
Mining (NEM)?
- Bring back the cars! – Both General
Motors (GM) and Ford (F) are bigger than
the three smallest DJIA components, could we have brought back GM
or looked at including Ford in the Dow?
What do you think; did the DJIA make the right choice in
including UnitedHealth over the stocks listed above? Besides Google
and Apple, which company should have been put in there instead?
Let us know in the comments below!
APPLE INC (AAPL): Free Stock Analysis Report
GOOGLE INC-CL A (GOOG): Free Stock Analysis Report
KRAFT FOODS INC (KFT): Free Stock Analysis Report
UNITEDHEALTH GP (UNH): Free Stock Analysis Report
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