These Dow Stocks Don't Matter Anymore
Sep 22nd 2013 9:00AM
Updated Sep 22nd 2013 9:02AM
Beginning tomorrow, the Dow Jones Industrials will include three new components. As much as investors have focused on the new Dow stocks and the companies that they're replacing within the Dow, what many people haven't paid much attention to are the stocks that will now be near the bottom of the list when it comes to influence within the new Dow.
But because of the Dow's price-weighted calculation methodology, two of the three new Dow stocks will be among the three most important Dow components. Their inclusion will push the relative influence of several stocks near or below the 1% mark. Let's take a look at these stocks show why they don't really matter anymore, at least for Dow investors.
With a share price of $24.51, Cisco will be responsible for 1.02% of the Dow's overall value -- less than a third of what would be a fair equal-weighted share. Having once commanded the largest market capitalization in the entire stock market, the networking giant has never truly recovered its status from the top of the tech bubble in the late 1990s.
Cisco's woes have continued recently, as its most recent quarterly report included weak orders from China and the rest of the Asian region as well as unenthusiastic guidance for the current quarter. The company also decided to lay off 5% of its workforce, sending 4,000 employees out the door.
The question facing Cisco is whether cost-cutting efforts will help it compete better in its efforts to expand into cloud computing and other new trends. As economic conditions improve, Cisco has to hope that its customers will be more willing to make capital expenditures to buy the equipment it sells. Even so, it'd take a big boost to get Cisco out of the lower ranks of the Dow 30 from an index-weight standpoint.
GE shares fetched $24.01 on Friday, putting its weight in the Dow at exactly 1%. The conglomerate has never had a very high share price, and despite a big recovery from its lows during the financial crisis, GE's stock still trades at less than half its all-time highs from more than a decade ago.
General Electric has made huge efforts to transform its business, reemphasizing its industrial roots and capitalizing especially on its presence in the energy industry. With its strong position in alternative energy and its more recent movements into the oil and gas services sector, GE has more room to climb, but it probably won't have much of an impact on the overall Dow.
Chipmaker Intel is now the lowest-priced stock in the Dow, with a $23.77 share price representing 0.99% of the total weight of the 30 Dow components. That fate is arguably befitting of a company that is still struggling to find its way in the rapidly evolving semiconductor industry.
Intel isn't going down without a fight, as it finally begins to release chips designed for mobile devices like tablets and smartphones that have a chance of competing against its rivals' offerings. Intel's has included an emphasis on low power consumption in its desire to look beyond the highest-end markets. If Intel can improve its penetration in emerging markets and other places where lower-price-point devices are key drivers of growth, it could finally end the stock's long malaise and point the way forward for investors.
Don't count them out
Just because these companies aren't relevant for Dow purposes doesn't mean they're doomed to failure. But whether they succeed or fail, don't look for their stocks to have a significant impact on the Dow's overall return.
On the other hand, some of the best dividend-paying stocks in the Dow have much greater weights in the average than the three stocks discussed above. Find out about them in The Motley Fool's brand-new special report, "The 3 Dow Stocks Dividend Investors Need." It's absolutely free, so simply click here now and get your copy today.
The article These Dow Stocks Don't Matter Anymore originally appeared on Fool.com.Fool contributor Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter: @DanCaplinger. The Motley Fool recommends Cisco Systems and Intel. The Motley Fool owns shares of General Electric and Intel. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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