The Dow Jones Industrial Average. America’s most exclusive club.
After it was expanded to 30 on Oct. 1, 1928, the index represents some of the biggest sectors, industries and companies in America. With no set selection or deselection process, years can go by when no changes are made. The latest period of inactivity was 17 years in duration — from June 1, 1959, to August 9, 1976.
Not a day goes by when some media outlet in some part of the world isn’t discussing the composition of one of America’s oldest, not to mention wealthiest, clubs. While there are thousands of stocks trading on the NYSE or NASDAQ, only 30 get to claim the title of “Dow Jones Company,” an institution that’s getting ready to go over 20,000 for the first time in its history.
Which components of the index are long in the tooth and in need of removal? I’ll answer that. And in their place I’ll give you the 10 companies that should be in the Dow Jones.
Dow Jones Candidates: Berkshire Hathaway (BRK.B, BRK.A)
While Travelers has only been a member since 2009, Berkshire Hathaway does everything it does, only better. Warren Buffet personifies what makes America great: he’s intelligent, polite, generous, down to earth and extremely funny. Oh, and he’s also kind of rich.
The only reason they wouldn’t do it?
Think how much money currently invested in the S&P 500 would flow to the Dow. Now that the two indexes are run under one roof, the staff meeting to announce this change would be epic.
Dow Jones Candidates: NextEra Energy (NEE)
The next candidate for removal is an easy one.
E I Du Pont De Nemours And Co (NYSE:DD) is in the middle of merging with Dow Chemical Co (NYSE:DOW). Delayed by European regulatory issues, this combination should ultimately get the green light. When that happens, the two companies will be split into three separate businesses, all of which will be public companies. No more Dow for DD.
Both types of renewable energy sources have taken a long time to become part of the world’s energy picture, but that appears to be changing, and although Donald Trump is expected to friendly to oil and gas companies, NextEra deserves a place at the table — especially when you consider there currently aren’t any utilities in the index.
Dow Jones Candidates: Blackrock (BLK)
In AMEX’s place, I’m going to drop in BlackRock, Inc. (NYSE:BLK), the world’s largest asset manager with $5.1 trillion in assets under management and $8.3 billion in revenue through the first nine months of fiscal 2016.
Exchange-traded funds have changed the way we invest, and BlackRock’s iShares brand owns the biggest piece of that puzzle in both the U.S. and Europe. iShares’ revenue accounts for approximately 26% of BlackRock’s overall sales. In the third quarter, iShares had long-term net inflows of $51.3 billion, including $25.5 billion from equities.
I would have to say that iShares’ contribution to the world is slightly ahead of the AMEX Centurion card.
Dow Jones Candidates: Kraft Heinz (KHC)
Just do it! That’s right, folks. Phil Knight’s baby has got to make room for the new kids on the block.
Nike Inc (NYSE:NKE) has had a great run and it’s not done yet. That said, there are other consumer-focused companies in America that are better representatives of the American economy. While I still like its stock, the old must make room for the young.
If you think I’m talking about Under Armour Inc (NYSE:UAA), you’d be wrong.
I do like what Kevin Plank’s done down in Baltimore but I’m going in a slightly different direction, opting instead for Kraft Heinz Co (NASDAQ:KHC), the massive food company brought to you by Warren Buffett and his friends at 3G Capital.
Sure, the boys from Brazil are known for cutting the fat out of businesses and in the process killing American jobs, but the truth is they’re simply doing what needs to be done to keep the businesses they buy from disappearing due to lazy and entitled management. The last time I checked, Warren Buffett’s various businesses have created a lot more jobs than Donald Trump’s did.
Should KHC seriously entertain buying Mondelez International Inc (NASDAQ:MDLZ), the combination of three of America’s best food companies would make it a natural addition to the Dow.
Dow Jones Candidates: Amazon (AMZN)
It’s time to take out the Golden Arches.
Despite being the only restaurant chain in the Dow, McDonald’s Corporation (NYSE:MCD) represents America’s old-school eating habits; it belongs in the rearview mirror despite its heroic attempt to make all-day breakfast trendy. And no, I don’t think there’s an appropriate large-cap restaurant chain to take its place.
McDonald’s is part of the services sector; So, too, is Amazon.com, Inc. (NASDAQ:AMZN), a company known for overturning both the retail and cloud apple carts.
Jeff Bezos is a brilliant tactician. I, for one, look forward to many more years of his relentless pursuit of the future. If I could only have one pick for a stock that should be in the Dow Jones, AMZN would be it.
Dow Jones Candidates: Alphabet (GOOG, GOOGL)
Heck, Watson was created more than a decade ago, just about the same time Google went public. As technology stocks go, I don’t think there’s a better large-cap representative of what’s happening on the innovation front in America today.
Yes, it generates most of its revenue from advertising but there are so many other parts of the business that are slowly percolating into something meaningful, I’m not sure why you wouldn’t want GOOGL in the Dow Jones.
Dow Jones Candidates: Archer Daniels Midland (ADM)
Probably the Dow Jones components that best represents the American way of life, Procter & Gamble Co (NYSE:PG) has 22 brands generating more than $1 billion in revenue annually. It’s a part of almost every person’s daily life.
As a stock, it’s low-risk and low-return. Dividend investors love it but unless you’re 60 years old, it just doesn’t have what it takes to deliver solid returns for investors.
In its place is Archer Daniels Midland Company (NYSE:ADM) whose stock delivered a total annual return of 45.6% over the past 52 weeks, well over the 17.4% of PG.
With the planet’s population spiraling higher, it’s putting extreme pressure on the world’s ability to feed itself. If we are to survive for centuries to come, innovation in farming is absolutely essential to achieving this goal.
Innovation costs money and ADM have plenty of it — $6.4 billion including t-bill investments — so look for it to continue acquiring companies in the various agriculture-related segments of its business.
The future is agriculture.
Dow Jones Candidates: Deere & Company (DE)
Continuing the theme of agriculture, my next selection means the departure of GE, the longest-standing component of the Dow.
While GE CEO Jeff Immelt’s transformation of the company has gained a level of acceptance from investors — it’s now a global player in the fullstream oil services business — it just doesn’t scream that Thomas Edison was its founder anymore. That’s the price you pay when you’re industrial company turned lender.
As I said previously, agriculture is the future and a prime beneficiary of that macro theme is Deere & Company (NYSE:DE) although you probably wouldn’t now it by its top- and bottom-line in recent years. In 2013, it had $6.2 billion in operating income from $37.8 billion in revenue; in 2016, its operating income was just $3 billion from $26.6 billion in revenue.
However, the agriculture cycle, according to Jim Cramer, has turned and that’s putting stocks like Deere into orbit. Up 38.3% in 2016, investors can expect more of the same in 2017.
Dow Jones Candidates: Gilead Sciences (GILD)
After 20 years a member of this exclusive club, I’m cutting Johnson & Johnson (NYSE:JNJ) loose. The maker of Band-Aid and Tylenol, JNJ is obviously much more than consumer products. However, this is the segment that most investors can relate to.
Maybe it’s a mistake to kick out both JNJ and PG, but we live in a different world — a world in which new diseases seem to crop up at a faster rate than healthcare professionals are able to stamp them out.
Gilead Sciences, Inc. (NASDAQ:GILD) has been developing life-changing drugs for HIV/AIDS, cancer, cardiovascular disease and many others since 1987. The company generated almost $20 billion in free cash flow in 2015, the same as Johnson & Johnson, on just half the revenue.
As the eighth-largest healthcare company by market cap in the S&P 500, it deserves a spot in the Dow.
Dow Jones Candidates: ConocoPhillips (COP)
Now that Rex Tillerson has left Exxon Mobil Corporation (NYSE:XOM) for the comfy confines of the White House, it’s time to take out the world’s largest integrated oil & gas company and replace it with an independent oil and gas stock like ConocoPhillips (NYSE:COP).
With Chevron Corporation (NYSE:CVX) already in the Dow, it’s important to have a stock in the index that represents America’s heritage in oil and gas exploration and production industry.
Furthermore. with COP taking the past couple of years to wring expenses out of its business model, it now has a $50 breakeven per barrel of oil, 33% less than when prices began to decline in 2014.
It has underperformed XOM over the past three years but its addition to the Dow would surely help its cause.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.