GM & Citi Removed From The Dow; Are Cisco & Travelers The Best Replacements?

The Dow Jones editorial board, which runs the Dow Jones Industrial Average (^DJI), selected Cisco Systems (CSCO) and Travelers (TRV) as replacements for General Motors (GM) and Citigroup (C). GM is being removed because it is bankrupt. C is being removed because of its ongoing restructuring.

I think Dow Jones missed a good opportunity to position the average for the changing global economy.

CSCO has long been considered to be a prime candidate for the Dow. Given its size and influence, it’s difficult to argue against adding the telecom equipment company. However, the average already has Hewlett-Packard (HPQ), International Business Machines (IBM) and Intel (INTC) — 3 bellwethers of the tech sector.

Therefore, I think a better choice would have been Google (GOOG). Adding GOOG would have given the Dow exposure to the ever-growing ecommerce sector AND the wireless communications sector. Phones using Google’s Android operating system are slated to appear at multiple carriers this fall.

Travelers (TRV) was clearly picked to give the average another financial company. The Dow editors continue to like Citigroup and almost appear to be keeping a spot for it.

Rather than staying focused on the financial sector, however, the editors should have gone with Monsanto (MON). Though agriculture accounts for a smaller portion of the U.S. economy than it did in the past, food consumption is only going to rise in the future. Furthermore, the ongoing focus on biofuels means long-term demand for companies like MON.

Finally, it’s important to note that the U.S. is becoming more and more of a knowledge-based economy. This means companies that can create products which enhance productivity, such as Google and Monsanto, are more likely to prosper in the future.

To be fair, CSCO and TRV are also knowledge-based companies, but given the composition of the Dow, they wouldn’t have been my first choice as replacements.

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