The Zacks Analyst Blog Highlights:Hewlett-Packard, IBM, Apple, Bank of America and Alcoa
CHICAGO, Sept. 16, 2013 /PRNewswire/ -- Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include the Bank of America Corporation (NYSE:BAC-Free Report), Hewlett-Packard Company (NYSE:HPQ-Free Report), Alcoa Inc. (NYSE:AA-Free Report), IBM Corp. (NYSE:IBM-Free Report) and Apple (Nasdaq:AAPL-Free Report)
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Here are highlights from Friday's Analyst Blog:
3 Stocks Exiting the Dow
Earlier this week, the index committee of S&P Dow Jones Indices decided to remove key companies from the Dow Jones Industrial Average. Bank of America Corporation (NYSE:BAC-Free Report), Hewlett-Packard Company (NYSE:HPQ-Free Report) and Alcoa Inc. (NYSE:AA-Free Report), will exit the index at the end of trading on September 20, when the decision comes into effect. This is the most significant such move since April 2004.
The Rationale Behind the Changes
David BlitzerThe companies being removed are amongst the lowest in the index on the basis of price. They continue to be important multinational corporations, but their stock prices has fallen to an extent that they contribute to only 3% of the total average, according to Blitzer. Such changes were, therefore, inevitable considering the rationale on which the index is based.
The Fortunes of Those Making an Exit
Alcoa
$7 to 8The company will remain largely unaffected by the Dow's decision. But it will affect the image and prestige of a corporation, struggling to combat wildly fluctuating prices by focussing on value added sales to the automotive and aerospace sectors.
Bank of America
The fact of the matter is that the aluminum producer never recovered from the recession of 2008. The case is more or less similar for Bank of America. Since then, it has been trying to reduce the size of its business. It has also been dealing with a large number of legal problems arising from its purchase of Countrywide Financial in 2008.
Even though the share price of this stock is still below the levels it achieved before the crisis, it has trended upwards last month. Last year, the share price had doubled. In this case as well, there will be no financial impact from this decision. But the bank is a long way from achieving the success it did before the crisis.
HP
IBM Corp. IBM Free ReportThe more disastrous acquisition, that of Compaq, occurred even earlier. This purchase meant that the company continued to focus on PCs while the world moved on to smartphones and tablets. Even in its chosen domain, it has little proprietary technology of its own.
The Impact on the Index
Even though it is only a thirty stock index, the Dow is still considered to be an important barometer of the economy. The idea behind the changes seems to be an attempt to make the index more representative of the financial markets as a whole.
The Dow has been criticized for being a price weighted index, but that is another matter altogether. The major issue weighing on it for some time now was that it was being heavily dominated by some stocks, primarily IBM, priced at $185 a share and making up 9.43% of the index.
The components being removed have an average share price of $15. On the other hand, those being added are priced at an average of $134.50 a share.
The excessive dominance of IBM on the index is why these inductions have been made, says Blitzer. This is also why the likes of Apple (Nasdaq:AAPL-Free Report) have been left out. Blitzer feels they would bring in even larger distortions due to their share prices.
Ultimately, the Dow's decision has been one of the signature events for financial markets this year. Many may question the Dow's rationale for such decisions. But ultimately it remains a significant barometer for the economy. Any move to make it more representative is, therefore, a welcome one.
Today, Zacks is promoting its ''Buy'' stock recommendations. Get #1Stock of the Day pick for free.
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