No one can deny the horror that was General Motors' (NYSE: GM) first quarter financial results . . . even if it did beat estimates. The automaker reported its eighth consecutive quarterly loss today -- this time in the amount of $6 billion. It also burned $10.2 billion in cash, its sales plunged 40% and it lost market share pretty much everywhere.On that note, it's not surprising the guardians of the Dow Jones Industrial Average, The Wall Street Journal editors, despite trying to keep to a minimum any changes in the component stocks, are finally considering removing the lowest priced stock on the index.
John Prestbo, the editor and executive director of Dow Jones Indexes, said in an interview with Bloomberg Wednesday: "There are two choices for GM: bankruptcy or increased government ownership. Definitely the trend is in the direction that would force us to remove it."
The DJIA index is unique in the way it's calculated, as it is price-weighted rather than market-value weighted. Right now GM represents only 0.2% of the 30-stock average. Another company in the index that is also priced very low is Citigroup (NYSE: C), but it has shown more resilience than GM, and we will know better how it should fare after the stress test results are released this afternoon.
So if GM is booted out of the Dow, what stock will replace it?
The Dow is intended to "provide a clear, straightforward view of the stock market and, by extension, the U.S. economy." After the stock market plunged, there has been much criticism that the Dow Industrials index no longer provides an accurate snapshot of the overall U.S. economy. Back then, at least five companies were below $10 a share.
Interestingly, the Dow may have actually painted a more accurate picture than many would admit, especially considering how the economy collapsed at the time. Now, with only Citigroup and GM left under $10 as the economy shows signs of stabilizing, the Dow may have one final tweak in this current crisis.
The obvious choice to keep the economic picture accurate would be another car company, and the only one that's left is Ford Motor Company (NYSE: F). It has not received a bailout from the government and its cash position is more favorable, indicating it could withstand the current downturn better than its Detroit competitors. Its stock is already over $6 and entry to the Dow would give it another boost.
In the past I've suggested Cisco Systems (NASDAQ: CSCO) and Apple (NASDAQ: AAPL), while others also suggested Oracle (NASDAQ: ORCL) -- but that could make the index too tech-weighted. I also thought a builder could be a nice addition to the Dow. Another financial, given the already financial services heavy index, would only make sense if Citigroup got the boot too, which leaves FedEx (NYSE: FDX) and UPS (NYSE: UPS) as two of the more likely candidates to replace GM.
To keep the consistency of the Dow, though, I'd rather see Ford in.
Disclosure: Long Ford
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