Google (Nasdaq:GOOG) In Dow: A Look At Possible Replacements

By: Sajal Friday, May 29, 2009 9:58 AM

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It’s almost a foregone conclusion that General Motors (GM) is going to be replaced from the Dow. People have started speculating on possible replacements:

From Yahoo Finance:

In a research note last month, Nicholas Colas, chief market strategist for BNY ConvergEx Group, laid out seven possible replacements for GM: bankers Goldman Sachs Group Inc. and Wells Fargo & Co.; high-tech firms Cisco Systems Inc., Apple Inc., Google Inc. and Oracle Corp.; and agricultural products maker Monsanto Co.

Based on the market moving impact of high price stocks on the Dow index, I would safely rule out Google, and even Goldman Sachs and Apple would be pushing the envelope. Why? If Google were to be added at the current price, it would comprise 28% of the Dow index! Thus Google CANNOT possibly be a serious candidate for the price weighted Dow index. The biggest weight in the Dow currently is IBM with close to 10%. Even Apple or Goldman Sachs would contribute close to 11% and 12% respectively to the index, which is why I think their addition to the index is unlikely.

If that’s not reason enough, here’s another fact: What's the number of current Dow components not paying a dividend? Answer: ZERO. If this were to hold true going forward, that would rule out Google, Apple and even Cisco from the list of contenders.

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