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The market
volatility of the last few months has produced a tremendous
amount of fallout and we believe there is still plenty more to
come.
Already we
have experienced high-profile companies going bankrupt, while
others have been put on government-aided life support. And
companies seem to be trying every trick they know to reduce
costs amid this economic recession. Layoffs have been announced,
dividend payments cut, marketing budgets slashed, and even
executive compensation is being toned down.
For some
companies, these actions are going to be too little, too late.
What once were considered solid blue-chip companies have become
little more than penny stocks. We at
eChristianInvesting have been anticipating a shakeup in the
Dow Jones index for some time now and believe that changes will
be coming in the near future.
So who’s
in and who’s out?
Well, of
course no one knows for sure at this point, but here are some
potential Dow shakeup scenarios.
Sure
Gonners
Citigroup
is almost guaranteed to be removed from Dow index. Citigroup’s
woes have been well documented, but falling below a $1 per share
on March 5 was probably the last straw.
General
Motors is on the precipice of bankruptcy and therefore is all
but guaranteed to be removed from the Dow. The company has been
struggling for some time now and saw its share price fall 87%
last year and has fallen 42% since the beginning of this year.
Potential
Replacements
We
anticipate that the upcoming Dow shakeup will reduce the number
of financial stocks from its current four components (Citigroup,
Bank of America, American Express and JP Morgan Chase) to only
three financial stocks.
Citigroup
is almost certain to be replaced and Bank of America has been
discussed as a possibility. If only Citigroup is removed, it is
likely they would be replaced with a non-finance stock like
Gilead Sciences, Costco, or potentially another energy stock.
Should both be removed, we would anticipate either Wells Fargo
or Visa being tapped to replace one of the financials.
General
Motors is the other Dow component that is almost certain to be
replaced. We would expect GM to be replaced with another
consumer goods company. Some possible replacements would be
Unilever, General Mills, Cadbury, or Toyota.
Other Dow
Components At-Risk
While GM
and Citigroup are the two components almost certain to be
removed from the Dow index, they are by no means the only
companies at-risk. Alcoa, Bank of America, and Caterpillar have
also been discussed. However, it would seem unlikely that they
would want to make wholesale changes to the Dow index at this
critical time in the markets. We would expect that any changes
would be restricted to two or at most three components.
These
changes are certainly long overdue!
At the time this article was published, the author did not have
a financial position in any of the stocks mentioned in this
article.
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