This evening, the White House confirmed that General Motors will be filing for Chapter 11 bankruptcy protection on Monday morning in a move that surprises few. The auto company has been able to come to terms with the UAW and with institutional bondholders which may allow for a quicker pre-packaged bankruptcy although the value of a GM even when/if it comes out of bankruptcy is highly questionable. More concerning to me is who would be willing to lend to GM/Chrysler and potentially even Ford in the future considering the strong-arming that the Government has undertaken which has basically thrown rules of law out the window much like Italy has done in the past with companies such as Parmalat.
Of more immediate issue will be a change in the Dow Jones Industrial Average which is likely to be announced sometime this week where GM will be removed (and some may argue Citibank may be at some point as well). A couple of things to remember about the Dow Jones Industrial Average is that its price-weighted so a stock selling for $100 will have 4 times the influence of one trading at $25 and that they tend to favor similar stocks. My 5 leading contenders for possible inclusion into the Dow Jones Industrial Average include:
1) United Parcel Service (UPS: Market Cap: $51B) $51.14: UPS is a leading company in the delivery and freight business with a global footprint, the stock is priced at just about the perfect level for DJ inclusion, is a cyclical company much like GM, has a long history starting in 1907, pays a 3.7% dividend and has healthy growth prospects during periods of economic growth.
2) Amgen (AMGN: Market Cap: $50B) $49.94: Amgen is a biotechnology company with a strong global presence, much like UPS its trading at an attractive price level for entrance into the DJ, gives the index a biotech presence which it currently does not have, however, its a bit more of a longshot due to the company not paying a dividend and having a shorter operating history since 1980.
3) Monsanto (MON: Market cap: $45B) $82.15: Monsanto is a leading global company within the agriculture sector, pays a 1.3% dividend yield, has strong global growth prospects and is a leader within their field.
4) Cisco Systems (CSCO: Market Cap: $107B) $18.50: Cisco Systems is one of the larger capitalization companies that is not in the Dow Jones Industrial Average which is based in the United States. They are clearly a leader in their field and an important part of the economy although the company does not at this time pay a dividend which may decrease their chances of making it into the index. Oracle would be another strong candidate within the technology space.
5) Goldman Sachs (GS: Market Cap: $73B) $144.57: Goldman Sachs would be a much stronger candidate if the share price were lower but considering the removal of AIG recently and potentially Citibank in the near future they are still a decent candidate for inclusion in the index. Another financial candidate is Visa.
Longshots: Some other companies which have been mentioned which I consider to be longer shots due to price are Apple, Google, CME and Berkshire Hathaway. Of the four, I would consider Apple to be the most likely. CVS Caremark could potentially be another candidate although their capitalization is a bit lower than other candidates.
What are some of your opinions?
Nice call on Cisco Systems (CSCO)
Posted by: Brett Carlson | Monday, June 01, 2009 at 09:43 AM