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Dow looks to possibly replace underperforming stocks with new blood

The Dow Jones Industrial Average (DJIA) is a price-weighted average of 30 significant stocks that are traded on the NYSE and the NASDAQ. The stock on the DJIA are all blue chip picks that include some of Americas best performing companies like Disney, Exxon, and Microsoft.

However, among the 30 firms that are part of the DJIA are several former blue chip picks that are currently under hard financial times including General Motors and Citigroup. Citigroup stock is now trading as low as 97 cents and six of the top stocks on the DJIA now trade at under $10 reports Reuters.

With some of the stocks trading at such low prices, replacements for some companies are actively being sought. Among the most likely to be replaced on the DJIA are believed to be General Motors and Citigroup according to analysts. The Dow has fallen to approximately 25% of its former value in 2008 and prompted calls for the Dow to be overhauled with some saying the overhaul has been needed for a long time.

Analyst Barry Ritholtz from Fusion IQ told Reuters, "I don't have much interaction with Exxon Mobil, but I'm on Google 47 times a day. Indirectly that means I'm interfacing with the plumbing of Cisco."

Both Cisco and Google are being looked at as possible replacements for underperforming stocks currently on the Dow. Other possible candidates for replacing floundering current Dow stocks are credit card network Visa and Apple Computer.

Michael Sheldon from RDM Financial told Reuters, "Some have said that Visa, because of its strong brand name and relatively large market capitalization of almost $42 billion, might be a possible replacement for Citi."

Part of the issue with replacing underperforming stocks on the Dow is that there is no agreement currently in place that says what company mix the Dow should have or the size of the companies that should be listed. This has led to debate among analysts about what the index is supposed to represent.

Paul Nolte from RDM Financial said, "Does it represent the largest and best companies in the U.S.? If so, I think you can probably argue that a third of the companies should probably go. But if you want to say they represent various industries and replicate what is going on in the U.S. economy -- it's doing that under current conditions."

One major technology firm that has been on the Dow Jones for years is Microsoft. Microsoft has been feeling the pressure of the poor global economy that has reduced the number of PCs sold. A reduced number of PCs sold means that the sales of Microsoft's bread and butter software is down. As a result of poor sales Microsoft is laying off employees.

GM is having a worse time than Microsoft and has already accepted funds from the government to continue operating. GM said in early March that it would file bankruptcy if it didn’t get more money from the U.S. government to continue operating.





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