If you believe in the Dow Jones Industrial Average, buy some shares of Salesforce (NYSE:CRM) stock.
The cloud-based database software company is being added to the Dow Jones, along with biotech company Amgen (NASDAQ:AMGN) and defense giant Honeywell (NYSE:HON). The change takes place at the end of August.
The addition of CRM stock to the index is symbolic of what is working in 2020.
Steady Progress for CRM Stock
Salesforce’s shares were up 28% on the year before the news, and they advanced 2.4% overnight. CRM stock opened Aug. 25 at about $213.50, a market capitalization of $188 billion.
Salesforce usually beats earnings estimates. It should do it again after the market closes. Analysts are expecting earnings of 67 cents per share on revenue of $4.9 billion. That’s year-over-year growth of 23%.
Salesforce.com was founded 20 years ago to sell Customer Relationship Management applications based on Oracle (NYSE:ORCL) database software, as a service. Salesforce passed Oracle in market cap last month and is now almost $20 billion ahead.
The move is a tribute to the cloud, which Salesforce embraced in the last decade. It has alliances with Amazon (NASDAQ:AMZN), Microsoft (NASDAQ:MSFT) and Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL). Along with nine centers Salesforce manages itself, this offers redundant copies of the application from all major business centers.
S&P Global (NYSE:SPGI) said the moves were made necessary by Apple’s (NASDAQ:AAPL) 4-for-1 stock split. The Dow is a price-weighted average, and the split drops Apple’s stock price. Without the changes, information technology’s role in the average would be just 20%, the release said.
Salesforce is replacing Exxon Mobil (NYSE:XOM), which had been on the index since 1928. Amgen is replacing Pfizer (NYSE:PFE), another drug stock. Honeywell is replacing Raytheon (NYSE:RTX). It merged with United Technologies last year, although the combination retained the Raytheon name. The move is a return to glory for Honeywell, which was taken out of the index in 2008 after an 83-year run.
The Dow announcement puts more lift under Salesforce shares. They have now nearly doubled from the March lows. Funds that track the DJIA average now have to hold Salesforce stock. We saw that after the announcement, with the new members rising in price and those leaving the index falling. The Dow has been nearly flat on the year, while the S&P 500 and Nasdaq Composite are up.
Some may find the move ironic. Salesforce CEO Marc Benioff famously said “capitalism is dead” at the Davos conference this year. What he meant was companies must honor employees, customers and the environment as stakeholders, not just shareholders. Generation Investment Management, co-founded by former Vice President Al Gore, has reduced its Salesforce holdings this year.
The Bottom Line on Salesforce
Salesforce has long been an analyst favorite. The stock has risen an average of 40% each year for the last five years. It is up almost 700% over the last 10 years. It’s a buy-and-hold stock. Right now, 21 of 25 analysts on TipRanks say buy Salesforce. One of them has a one-year price target of $254 on the shares.
My view is that Salesforce’s inclusion in the Dow means its go-go days are past. It’s now a conservative investment. Not that there’s anything wrong with that.
Dana Blankenhorn has been a financial and technology journalist since 1978. His latest book is Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, essays on technology available at the Amazon Kindle store. Follow him on Twitter at @danablankenhorn. As of this writing he owned shares in AMZN, AAPL and MSFT.