Alcoa removed from Dow because of low stock prices

The Dow Jones announced that Goldman Sachs Group, Visa and Nike will be added to the industrial average. They will replace Hewlett-Packard, Bank of America and Alcoa.

The changes, will take effect with the opening of trading on Monday, Sept. 23. Its level won't change when the new components are added.

The index 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.

David Blitzer, managing director and chairman of the index committee, said in a conference call Tuesday that it will be the first three-for three change in the Dow since 2004.

"We are removing three lowest priced stocks and replacing them with stocks with higher prices," he said. Alcoa, which is trading at about $8, is the lowest priced stock in the index, he said. This will bring down the weight of the other 27 companies in the index.

Unlike most indexes, the Dow is an average, and the higher a component's price, the greater impact it has on the index.

Visa will now be the Dow's second-largest component, just behind IBM, and Goldman Sachs will be the third-largest component. Nike will weigh in at number 18, just behind DuPont.

The additions and deletions will mean that a $1 price gain in any one component will equal a 6.5 point-change in the Dow, vs. 7.7 points in the old Dow, according to Bespoke Investment Group.

The Dow was created by Charles Dow in 1896 and originally had 11 stocks. General Electric, added in 1928, is the oldest current Dow component.

Changes to the Dow are relatively rare. The last time any additions or removals were made occurred on June 8, 2009 when computer networking equipment maker Cisco Systems replaced financial firm Citigroup.

All told, there were eight additions and eight deletion made to the Dow between 1999 and 2009. The newest stocks added are: insurer American International Group, drugmaker Pfizer, telecom Verizon, bank Bank of America, energy company Chevron, food company Kraft, insurer Travelers and Cisco.

Stocks removed during that time period: International Paper, General Motors, AT&T, Allied Chemical & Dye, photo firm Eastman Kodak, food company Altria, Citigroup and American International. AIG was added in April 2004 and removed in September 2008.


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