Dow's Newest Members Awake to Cheers

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

Becoming a member of the Dow Jones Industrial Average (DJINDICES: ^DJI  ) is the closest thing there is to reaching legend status on the stock market. The 30 companies contained in the Dow are well-established and financially sound companies that are considered representative of the whole market. 

Today, it was announced that longtime Dow members Hewlett-Packard, Alcoa, and Bank of America are being kicked out for the new kids on the block, Nike (NYSE: NKE  ) , Goldman Sachs (NYSE: GS  ) , and Visa (NYSE: V  ) . This means funds that seek to replicate the Dow or are benchmarked against the Dow have run out to buy those three stocks, pushing each higher today.

Goldman Sachs is the biggest winner of the group, climbing 3.7%. The stock is essentially replacing Bank of America, which nearly collapsed during the financial crisis. Goldman is considered one of the best risk-managers in banking, but it's also one of the most controversial. Being a component of the Dow will bring it even more scrutiny and coverage -- something Goldman may not necessarily want.

Visa has risen 3.2% today, and when it joins the Dow it will become the second-most impactful component behind IBM. The Dow is a price-weighted index, which means high-price stocks like Visa have a greater impact on the index than a lower-priced component. Nike, for example, would need to move nearly 3% to have the same point impact on the index as a 1% move by Visa, because it's just more than one-third the price of Visa.

Nike will give the Dow a more consumer-centric weighting in replacing a component like HP or Alcoa. The stock has popped 2.3% on news of the company's addition to the index.

Stalwarts of the Dow
Goldman Sachs, Visa, and Nike are the Dow news of the day, but less exciting companies may be the way to profit in the long term. The Motley Fool's brand-new special report, "The 3 Dow Stocks Dividend Investors Need" highlights three strong dividend stocks that are the bluest of the Dow's blue chips. It's absolutely free, so simply click here now and get your copy today.

Read/Post Comments (2) | Recommend This Article (2)

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  • Report this Comment On September 10, 2013, at 4:35 PM, birder1500 wrote:

    Got to soup up the Dow. Get rid of the dead wood. I wonder why they continue to call it the Dow Industrials?

  • Report this Comment On September 10, 2013, at 4:46 PM, chris293 wrote:

    Just because they are big does not always make them better, that applies to big governments who seem to prove this point. Two financials and a shoe company however are quality exceptions with worldwide appeal, especially NKE which I hold as long as they keep the quality up. As customers, we always have the right to demand quality in what we buy.

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Related Tickers

9/23/2016 4:55 PM
^DJI $18261.45 Down -131.01 -0.71%
GS $165.13 Down -2.89 -1.72%
Goldman Sachs CAPS Rating: ***
NKE $55.15 Down -0.26 -0.47%
Nike CAPS Rating: *****
V $82.54 Down -0.82 -0.98%
Visa CAPS Rating: *****