(Barrons) Intel Stock Is Slumping. It’s in the Dow Danger Zone.
Source below...
Intel already had the lowest weighting in the Dow Jones Industrial Average, which ranks its 30 components by price, before it reported earnings Thursday. The chip maker made up only about 0.47% of the Dow. But Intel’s now an even smaller part of the Dow following a more than 25% stock plunge Friday, with a weighting of just 0.34%, according to Dow Jones Market Data.
So could Intel, once the envy of the semiconductor industry, soon be booted from the prestigious Dow?
Intel’s disastrous results, weak outlook, cost-cutting plans, and dividend suspension clearly do not bode well for the stock, which has been more than halved in price so far in 2024, and trades for around $21.
Verizon Communications and Cisco Systems, with stock prices of around $41 and $47 respectively, have the second- and third-lowest weightings in the Dow. Intel is also the fourth-smallest company in the Dow by market capitalization after slipping behind Boeing and Nike Friday morning. Intel is valued at about $90 billion. Only Dow components 3M, Travelers, and Dow (the chemicals giant) are worth less.
S&P Dow Jones Indices, which manages the Dow Jones Industrial Average, declined to comment when asked by Barron’s if Intel could soon be removed from the index. But according to the Dow Jones Averages methodology established by S&P Dow Jones Indices, “changes to the indices are made on an as-needed basis” and are done “in response to corporate actions and market developments.” Such additions and removals “can be made at any time.”
So don’t be surprised to see Intel given the old heave-ho from the Industrials sometime soon. That’s what happened to Walgreens Boots Alliance, the struggling dr-gstore chain, earlier this year. Walgreens was kicked out of the Dow in February and replaced by Amazon.com.
But if Intel is removed, what could replace it? Semiconductor giant Nvidia is the most logical choice. It is the leader in artificial-intelligence chips, an area that Intel is woefully behind in, and sports a market capitalization of more than $2.6 trillion. Nvidia also announced a stock split earlier this year, which puts its share price in a more Dow-friendly range of about $107.
Other possible contenders in the chip sector? Broadcom, which also recently split its stock, and now trades at around $145, could make sense. Ditto for Qualcomm, and Intel’s longtime rival Advanced Micro Devices. AMD was gaining from Intel’s pain on Friday. The stock was up more than 2%.
Of course, there is no guarantee that another semiconductor stock would be added to take Intel’s place. Dow changes aren’t always a one-for-one swap for companies in the same industry or even sector. Salesforce replaced Exxon Mobil in 2020, for example. Nike was added to the Dow in 2013 at the expense of Alcoa.
And when Intel became a Dow component in 1999, it took the place of the decidedly non-tech company Goodyear Tire & Rubber.
Alphabet seems like a possible choice for Dow inclusion, given its dominant position in search. Its stock price, around $165 for its class A shares, also wouldn’t upset the weighting balance of the average. (It isn’t clear if Alphabet’s dual-class stock listing would be an issue, though.)
But given that the Dow already is home to Apple, Amazon, Microsoft, Salesforce, International Business Machines, and Cisco Systems, it’s also an option to replace Intel with a company outside of tech. PepsiCo, TJX, and Morgan Stanley are all megacap industry leaders that could be possibilities.
Just remember though that there aren’t too many mutual funds and exchange-traded funds for the Dow. The S&P 500 is the index that most fund managers try to match as a benchmark and there are plenty of S&P 500 ETFs out there.
So if Intel is eventually removed from the Dow, it may not impact the stock that much in the short term since there won’t be tons of passive index funds dumping it. Anyone selling Intel stock on Friday is doing so because of the bleak outlook, not concerns about its future in the Dow.
Source: https://www.barrons.com/articles/intel-stock-earnings-dow-industrials-51b6ce29