The Dow Jones Industrial Average is undergoing its third major shakeup in five years, with Nvidia replacing Intel and Sherwin-Williams taking the spot of chemical giant Dow. The changes suggest that additional replacements are possible. Walt Disney (DIS 0.09%) could be vulnerable to replacement if its streaming segment falls back into losses or parks show weakness. Alphabet (GOOGL -1.33%) and Meta Platforms (META -0.40%) are long overdue for inclusion, but Meta’s recent performance might hold it back.
The Dow’s composition changes occur when a company loses industry leadership or underperforms significantly. The index is price-weighted, meaning stock prices determine weighting rather than market capitalization. Companies like UnitedHealth Group and Microsoft have increased their weight due to big gains, while Intel remains the lowest-valued component.
Disney’s ranking in the Dow has declined due to years of underperformance, but its streaming segment has turned profitable. To be replaced, companies must experience prolonged underperformance. Verizon Communications (VZ -0.22%) and Cisco Systems (CSCO -0.03%) are better candidates than Disney due to their lower stock prices and poor performance over the last five years.
The Dow’s shift towards growth and less emphasis on yield reflects changes in market dynamics. The inclusion of tech-focused companies like Salesforce, Amazon, and Nvidia demonstrates the index’s adaptability. A more growth-oriented Dow could lead to higher volatility as investors seek out higher-yielding sectors or asset classes.
Source: https://www.fool.com/investing/2024/11/08/nvidia-intel-dow-jones-meta-alphabet-disney-stock