Starting September 23, Alcoa, Back of America, and HP will no longer be among the 30 companies listed on the Dow Jones Industrial Average. The changes "were prompted by the low stock price of the three companies slated for removal and the Index Committee's desire to diversify the sector and industry group representation of the Index," according to the Dow Jones Indices. These three companies will be replaced by Nike, Visa, and Goldman Sachs. This is the biggest move of companies in and out of the Dow Jones since 2004, when American International Group, Pfizer Inc, and Verizon Inc. replaced AT&T Inc., Eastman Kodak Co., and the International Paper Company.
When one looks at the math (Unfortunately, that is what one must do in order to understand the stock market, which also happens to be the reason none of us are rich from stock investments. Math... sigh.), it is evident as to why the change was made. HP probably has the biggest argument toward not being removed considering their stock is up 50% this year. However, their overall stock price is down $27 from 2010. Bank of America shares have decreased $35 since 2007, and shares of Alcoa stock have decreased $32 from 2007.
This doesn't mean that one should sell all their shares of these companies, though. David Blitzer, the managing director of the Dow Jones, stated that "Changing the stocks in an index is not an investment recommendation... It is done to improve the index, to make it a better representation of the market overall." So while Alcoa, Bank of America, and HP may be being removed from the Dow, it doesn't mean the companies are dead.
Alcoa means to prove that they are still alive and fighting. The aluminum-producing company, which has been part of the Dow for 54 years, will not let its recent slide bring an end to the company nor deter investors. The reason for Alcoa's recent demise has to do with the demand for aluminum. While it is true that the United States exports a lot of metal and minerals to China to support their intense technology market, China has lessened its demand for aluminum over recent years by becoming self-sustainable. So where does that leave Alcoa? The aluminum company hopes to abandon the aluminum business in the US soon (where the power it takes to smelt ore is simply too expensive) and instead pursue making lighter-weight components for vehicles. If Alcoa wishes to support another coup in South America, it better hope that it can make the transition soon. (Alcoa has long been linked with supporting the coup attempts of Salvador Allende in Chile during the 1970's [One probably shouldn't make allusions when they have to be explained. They might lose effect.])
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