In the biggest shake-up of the Dow Jones industrial average in nearly a decade, Goldman Sachs, Visa and Nike will be joining the prestigious 30-stock index.
The three newcomers - an investment bank, credit card payment processor and apparel company, respectively - will replace Alcoa, in the index since 1959, Bank of America and Hewlett-Packard Co.
The changes, which will take effect at the opening of trading September 23, were prompted by the low stock price of the three companies set for removal and the index committee's desire to diversify the sector and industry group representation of the index.
The Dow, created in 1896, is still considered Main Street's view of the stock market, even though its method of weighting stocks by price, rather than market value has kept out names like those two, among the most important U.S. companies, because of the outsized influence the stocks would have on the average.
First 3 for 3 change since 2004
The switch will be the first three-for-three change in the Dow since 2004, says David Blitzer, managing director and chairman of the index committee. "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.
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 No. 18, just behind DuPont.
The additions were also made to better improve the sector representation of the Dow. Nike adds to the Dow's consumer discretionary sector weighting. Visa is considered to be a technology company focused on payment networks, a corner of technology not represented before. Meanwhile, adding Goldman Sachs boosts the Dow's weighting in investment banking. Bank of America is a closer peer to another Dow member, JPMorgan Chase.
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.