LET'S GET READY TO RRRUMBLE. (Part 1)
Note: This is the first post of a two part "mini-series."
The Dow Jones Industrial Average shot up today as big DJIA news rocked the stock market. Effective September 23, 2013, three companies are being tossed out of the index, while three companies are being inducted to the DJIA as replacements. The news is the largest shake-up for the Dow in a decade. This post will discuss my initial thoughts about the three companies tossed out of the index, and the next post will discuss what I think of the companies who are now a part of the DJIA family.
This new development is certainly not good news for Alcoa. Alcoa is widely known as a big player in the aluminum industry. To me, it's no surprise that Alcoa was given the boot as its share price has decayed and the company has struggled with lower commodity prices and lowered prospects for its industry as a whole. I wouldn't count Alcoa totally out since they are a very large company that provides a key component to many different sectors (automotive, airlines, etc.) But, at this point, Alcoa doesn't seem to exhibit signs of a turnaround just yet. I would suggest cutting your losses by selling your Alcoa shares if you have some. If you still think Alcoa can turn around, then hold your shares. But don't get in to the stock until Alcoa can prove that it can effectively shrug off its troubles.
Bank of America (NYSE:BAC)
In contrast to Alcoa, Bank of America seems to be rather elated that they are not a part of the Dow anymore. Bank of America is a major financial institution and is probably happy that it doesn't have to be under as much scrutiny from the public eye now that they aren't a part of the Dow. I think that Bank of America still has plenty of upside potential due to its stability and room to grow in the coming years. I would recommend buying shares of Bank of America.
Hewlett-Packard has struggled as global PC sales have declined and is in the process of a multi-year turnaround. The stock has rapidly ascended in the past few months as investors seem to be buying into the turnaround story. Being kicked out of the Dow probably won't have too much of an effect on them since one can look at the situation both ways. Yes, like Alcoa, getting kicked out of the Dow is indicative of HPQ's struggles, but like Bank of America HPQ won't have as much scrutiny from investors now. Sure, global PC sales have decreased, but the PC certainly isn't dead yet, and sales for the PC might actually increase slightly in the next year or two. (I base that last clause off of a recent Motley Fool article and other study I can't find right now...so take that with a grain of salt.) But, even if PC sales still decline, HPQ still has other core parts of its business model to rely on and hopefully will attempt to develop. I would suggest holding HPQ if you have shares. Buying is risky at this point since the stock price already has investor optimism baked in to it, but selling might make you miss gains if optimism continues.