1.16.2009

Clean up the ^DJI

Throw Citi and BofA out of the Dow!

Excerpt:

If a company was one of the 30 considered to be an important barometer of the U.S. economy, you'd think that it would have to be a relatively stable firm.

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Now that Citigroup (C, Fortune 500) appears to be shrinking itself from a "financial supermarket" to a "financial convenience store," and Bank of America (BAC, Fortune 500) is receiving another $20 billion from Treasury Secretary Henry Paulson to ensure that Merrill Lynch doesn't torpedo the firm's balance sheet, I'm not sure that either is worthy of being included in the Dow anymore.

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With this in mind, who could replace Citi and BofA if they are both shown the door? (For now, I'll give up on the notion that GM will be booted anytime soon for a foreign automaker like Toyota.)

Getting rid of these two would mean that there are only two financials left in the Dow: JPMorgan Chase and American Express. So it's likely that at one replacement should be another financial firm.

I'd suggest Wells Fargo (WFC, Fortune 500). Sure, its stock has also taken a huge beating in the past few weeks, plunging 37.5% just this year alone. Wells also is a recipient of $25 billion in TARP funds, and it is taking a huge risk with its Wachovia acquisition.

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And I also recently argued that General Motors (GM, Fortune 500), which had to get a $13.4 billion loan from the federal government last month to avoid bankruptcy, should be kicked out of the Dow.

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