The Dow Approach

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Thursday, March 13, 1997
The Daily Dow FOOL GLOBAL WIRE by Robert Sheard LEXINGTON, KY. (Mar. 13, 1997) -- For the first time in nearly six years, the composition of the Dow Jones Industrial Average is being altered to reflect changes in the American economy. The folks at Dow Jones & Co. are not quick to change the world's most famous stock index, but the changes represent a much-needed update. Gone from the index as of Monday will be WESTINGHOUSE ELECTRIC <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WX)") else Response.Write("(NYSE: WX)") end if %>, WOOLWORTH <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: Z)") else Response.Write("(NYSE: Z)") end if %>, TEXACO <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TX)") else Response.Write("(NYSE: TX)") end if %>, and BETHLEHEM STEEL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BS)") else Response.Write("(NYSE: BS)") end if %>. Two of the four stocks dropping out (Woolworth and Bethlehem Steel) haven't paid dividends lately anyway, so weren't factors in the Dow Approach. Westinghouse is gradually shedding much of its industrial look and becoming more of a broadcasting company. With DISNEY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DIS)") else Response.Write("(NYSE: DIS)") end if %> and GENERAL ELECTRIC <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GE)") else Response.Write("(NYSE: GE)") end if %>, which owns NBC, also in the Dow, there's not much call for another broadcaster. Texaco, of course, was one of three large oil companies in the Dow, so reducing the energy weighting of the index makes a lot of sense. I always wondered what the justification was for three powerhouse oils in a 30-stock index. The four newcomers to the Dow are HEWLETT-PACKARD <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HWP)") else Response.Write("(NYSE: HWP)") end if %>, JOHNSON & JOHNSON <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: JNJ)") else Response.Write("(NYSE: JNJ)") end if %>, TRAVELERS GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TRV)") else Response.Write("(NYSE: TRV)") end if %>, and WAL-MART <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WMT)") else Response.Write("(NYSE: WMT)") end if %>. I believe the four choices are decent representatives. Wal-Mart replacing Woolworth is the most obvious revision given Woolworth's makeover into a specialty retailer and Wal-Mart's market dominance in the mass retailing field. Most of our long-time readers have called for such a replacement ever since Woolworth slashed its dividend some two years ago. Adding another healthcare, financial services and technology company also seems logical. But why not MICROSOFT <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MSFT)") else Response.Write("(Nasdaq: MSFT)") end if %> or INTEL <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: INTC)") else Response.Write("(Nasdaq: INTC)") end if %>? They don't trade on the New York Stock Exchange, of course, and that may be a strike against them, given that the other Dow stocks all do, but to my knowledge there's no express prohibition against Nasdaq issues in the Dow. All the speculation aside, the changes seem good ones from my perspective. They more accurately represent the growing emphasis in our economy of financial services, healthcare, and technology, and the companies are all genuine industry leaders. The big question is how do the revisions to the index change the Dow Approach? Surprisingly, changing 13% of the stocks in the index has had virtually no effect on the Dow Approach. None of the new four makes it into the top ten high-yield rankings, and only one of the stocks being dropped was among the high-yield ten (Texaco). The rankings, then, change very little, with Texaco disappearing and DUPONT <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DD)") else Response.Write("(NYSE: DD)") end if %> sliding back into the top ten. For Dow investors just about to update or start a new portfolio, the index adjustments only come into effect if you're buying the entire group of ten. Otherwise, the new makeup of the index has no effect. Here's what will change in our coverage and what won't. The current rankings, starting with today's report, will reflect the new composition of the Dow. (The official change takes place on Monday, but as with announced dividend hikes, there's no point following a rankings list we know is changing next week.) The 1997 Dow returns format, however, which we track in the Statistics Center each week, will not change. Consistent with the Dow Approach methods, once one buys a stock, one holds it a full year whether it remains in the Dow or not. You'll still see entries, then, for Woolworth, Westinghouse, Texaco, and Bethlehem Steel in our annual returns figures for the rest of 1997 since those were indeed Dow stocks when the year opened. For anyone starting today, though, always use the current rankings, which include the four new stocks. P.S. With PHILIP MORRIS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MO)") else Response.Write("(NYSE: MO)") end if %> plunging today, it recaptures the highest yielding spot in the Dow. That would mean using today's new rankings, AT&T <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: T)") else Response.Write("(NYSE: T)") end if %> would again be considered an Unemotional Value stock. On a different note, I'm taking a holiday beginning tomorrow for the next week. In my place for our nightly reports will by MF Miel and MF Shrimp. And as always, on our AOL message board, MF Elysian will continue to field your questions. The weekly Dow ranking updates will still take place at their normal time (Sunday for the AOL site and Monday for the Web site). Have a great week and I'll be back with you again on Monday, March 24. (c) Copyright 1997, The Motley Fool. All rights reserved. This material is for personal use only. Republication and redissemination, including posting to news groups, is expressly prohibited without the prior written consent of The Motley Fool.	The Current BTD 10 1. AT&T <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:T)") else Response.Write("(NYSE:T)") end if %> 2. *International Paper <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:IP)") else Response.Write("(NYSE:IP)") end if %> 3. *Goodyear Tire <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:GT)") else Response.Write("(NYSE:GT)") end if %> 4. *General Motors <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:GM)") else Response.Write("(NYSE:GM)") end if %> 5. *Chevron <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:CHV)") else Response.Write("(NYSE:CHV)") end if %> 6. Minnesota Mining <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:MMM)") else Response.Write("(NYSE:MMM)") end if %> 7. Exxon <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:XON)") else Response.Write("(NYSE:XON)") end if %> 8. J.P. Morgan <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:JPM)") else Response.Write("(NYSE:JPM)") end if %> 9. DuPont <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:DD)") else Response.Write("(NYSE:DD)") end if %> 10. Philip Morris <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:MO)") else Response.Write("(NYSE:MO)") end if %> ***NOTE: FOOLISH FOUR STOCKS ARE PRECEDED BY AN ASTERISK AND ARE ITALICISED Updated Daily
Today's Dow Numbers Stock Change Last -------------------- T + 1/8 35.88 GM - 3/4 57.00 CHV - 5/8 66.25 MMM -1 7/8 89.13 Day Month Year Since 1996 FOOL-4 -0.81% -4.24% -3.06% 25.33% DJIA -2.28% 0.02% 6.68% 34.43% S&P 500 -1.83% -0.16% 6.59% 28.19% NASDAQ -0.83% -1.20% 0.17% 22.92% Rec'd # Security In At Now Change 1/2/96 155 3M 64.50 89.13 38.17% 1/2/96 198 Chevron 52.38 66.25 26.49% 1/2/97 231 Gen. Motor 55.75 57.00 2.24% 1/2/97 618 AT&T 41.75 35.88 -14.07% Rec'd # Security In At Value Change 1/2/96 155 3M 9998.09 13814.38 $3816.29 1/2/96 198 Chevron 10370.25 13117.50 $2747.25 1/2/97 231 Gen. Motor 12878.25 13167.00 $288.75 1/2/97 618 AT&T 25801.50 22170.75 -$3630.75 CASH $396.17 TOTAL $62665.80

Main Page Fool Wire Hall of Portfolios Fool's School Daily News Fool Mart Foolish Games Copyright©1997, The Motley Fool, All Rights Reserved. This material is for personal use only. Republication and redissemination, including posting to news groups, is expressly prohibited without the prior written consent of The Motley Fool, Inc. Legal Disclaimer, in fine print of course! Questions or Comments? Please contact Ted Verrill at [email protected]