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CNBC ON DIGG

Who Should Replace GM (and Citi) on the Dow?

Published: Wednesday, 27 May 2009 | 8:38 AM ET

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By: Ariel Nelson
Director of Market Data & Content Services

As June 1 looms closer, the likelihood of General Motors [GM Loading... () ] declaring bankruptcy seems more real. If that is the case, which company might succeed GM as the next component of the Dow Jones Industrial Average [.DJIA Loading... () ]?

Another question investors are asking is as long as Dow Jones is going to have to act, will it switch out beleaguered Citigroup [C Loading... () ] as well? On a sector basis, GM falls within the Consumer Discretionary sector and Citi is in the Financials sector. However, the last few changes to the Dow were not sector for sector. Last September, Kraft [KFT Loading... () ] replaced AIG [AIG Loading... () ] and in February 2008, Bank of America [BAC Loading... () ] and Chevron [CVX Loading... () ] replaced Altria [MO Loading... () ] and Honeywell [HON Loading... () ].

That being said, potential replacements for Citigroup could include Wells Fargo [WFC Loading... () ] or Wall St darling, Goldman Sachs [GS Loading... () ]. The next biggest company by market cap in the Consumer Discretionary sector would be Amazon [AMZN Loading... () ]. Once Amazon is in the mix, Apple [AAPL Loading... () ], Google [GOOG Loading... () ], and Cisco [CSCO Loading... () ] should be considered as well. Finally, with all the focus on Energy and Health Care, maybe ConocoPhillips [COP Loading... () ] or Abbott Labs [ABT Loading... () ] should be considered? Take our informal poll and let us know what you think.

Whatever Dow Jones decides, it will likely lower the impact of the remaining Dow components on the overall index. Because the Dow is a price weighted index, GM and Citi ($1.44 and $3.77 respectively as of yesterday's close) have had little weight of late making the other 28 components more important. With a change, companies like current Dow price leader IBM [IBM Loading... () ], will lose some of their influence.