Alcoa's declining market capital and low share price prompted officials with S&P Dow Jones Indices to remove the US aluminum major from its Dow Jones industrial average Tuesday.
"Alcoa's market capital was dead last among the 30 industrial average companies," said Dave Guarino, spokesman for S&P Dow Jones Indices. Its market capital of $8.6 billion was "really low for the Dow," he said, especially in comparison with Nike, Alcoa's replacement on the index, which has a market capital of $58.2 billion.
Guarino said the stock price was also taken into consideration, with Alcoa's at about $8 compared with Nike's stock price of about $65.
Alcoa joined the Industrial Average Index on June 1, 1959.
"They had a pretty good run," Guarino said.
He could not comment on the likelihood of Alcoa returning to the index, but said the committee, which meets twice a year, is constantly evaluating and will make changes to the index as needed.
The index change is only the second since 2009 and the first "three-for-three" swap since 2004.
"Changes to the Dow are very rare," Guarino said.
Calls to Alcoa were not immediately returned, but the company did release a statement.
"The composition of the Dow Jones Industrial Average has no impact on Alcoa's ability to successfully execute our strategy, and we remain focused on delivering shareholder value. We continue to grow our value-add businesses and capture growth opportunities in end markets like aerospace and automotive," the company said. "At the same time we are optimizing our upstream competitiveness. We are focused on the things we can control, pressing our innovation edge and strong position in end markets, while lowering our cost position in our commodity business."
ADDITION OF GOLDMAN SACHS FOR DIVERSIFICATION
The other companies that were announced in the swap Tuesday were Goldman Sachs, which replaces Bank of America, and Visa, which replaces Hewlett-Packard. The swap will occur after the close of trading September 20 and changes will be effective with the opening of trading September 23. The changes won't cause any disruption in the level of the Dow, the S&P Dow Jones Indices committee said in a statement
"We took out low-price stocks that risk distorting the index," Guarino said. "Also, we were trying to keep closer track of sector diversification."
Diversification was key in the swap between Bank of America and Goldman Sachs.
"By replacing Bank of America with Goldman Sachs, the index has a more diverse representation of the financial sector," Guarino said.
Goldman Sachs' stock price was about $158 and its market capital was $74 billion as of Monday, compared with Bank of America's stock price of about $14 and market capital of $154 billion.
Of the recent lawsuit filed against Goldman Sachs pertaining to alleged violations of antitrust laws by restraining aluminum supplies, Guarino said the additions shouldn't be taken as an endorsement.
"Our job is to just have a representation close to the market we are trying to track," he said. "The index is not ... a recommendation or endorsement."
The Dow Jones industrial average provides a snapshot of the largest and most prominent companies in the US, he said.
