NEW YORK — Some dogs of the Dow have lost their bite.
If prices for the three cheapest stocks in the Dow Jones industrial average — General Motors, Citigroup and Bank of America — fell to zero, the index would shed fewer than 70 points. That’s about 0.9 percent.
With those three companies worth less than $5 a share, some investors are thinking the Dow should replace them. A $1 move in a Dow stock corresponds to about an eight-point move in the index, according to Dow Jones Indexes.
“I’m certainly surprised they haven’t done it,” said Jack Ablin, chief investment officer at Harris Private Bank. He already considers GM and Citigroup “ex-officio” members of the Dow.
Dow Jones said it has no threshold for including or excluding a company. But it has a history of replacing weak companies and isn’t ruling out future changes.
“We’re watching the situation very closely, and we are not saying that we are standing by these stocks come hell or high water,” said Dow Jones indexes editor and executive director John Prestbo, who helps The Wall Street Journal’s managing editor decide which companies go into the Dow.
The Dow Jones industrial average is far from the be-all, end-all measure of the U.S. stock market. Market participants tend to use broader indexes such as the Standard & Poor’s 500 for statistical analysis.
But the Dow is the most watched stock index in the world and historically useful because it is so old — created in 1896 by Wall Street Journal editor and Dow Jones & Co. co-founder Charles Dow.
General Motors is among the oldest Dow components, too, having joined the index in 1925. It’s now the smallest — GM’s shares have fallen to $2, and its market cap has dropped to $1.26 billion. At their peak in 2000, GM shares traded above $94 — more than the current price of any Dow stock.
Jeff Hirsch, editor of the Stock Traders Almanac, said it wouldn’t make sense to shuffle out the Dow’s cheaper companies, considering how weak the rest of corporate America is.
“Show me a company that’s worthy of replacing one of the 30, and I would consider it,” Hirsch said. “I don’t see it myself.”
