Cisco, Pfizer, AOL and AIG Eyed as Candidates for Dow Average
By Andrew Cinko
New York, Oct. 21 (Bloomberg) -- Cisco Systems Inc. or America Online Inc. are among companies that could win a spot in the Dow Jones Industrial Average if Honeywell International Inc. is bought by General Electric Co., investors and analysts said.
GE and another unidentified company made buyout offers for Honeywell, CNBC and Dow Jones News Service reported. A GE purchase of Honeywell would be the first merger of Dow members since 1907, according to Dow Jones & Co., and leave a spot in the 30-stock average for the editors of Dow Jones' Wall Street Journal to fill.
Cisco, the biggest maker of computer-networking equipment, merits consideration in part because of its $404 billion market value, which is second in the U.S. only to GE. John Prestbo, a Journal editor who oversees the average for Dow Jones, didn't return calls.
``Cisco is probably a top consideration, but I'm not sure that's a lock,'' said Chuck Carlson, manager of the Strong Dow 30 Value Fund, which invests in the stocks in the average. ``It still doesn't have the seasoning as a publicly traded company.''
Cisco sold shares to the public for the first time in 1990.
America Online, which is purchasing Time Warner Inc., is a possible addition if Dow Jones wants to give the average a broader representation of Internet and media companies, Carlson said.
Other companies that might be under consideration, Carlson said: Motorola Inc., the No. 2 maker of cellular telephones and a producer of semiconductors and two-way radios; and American International Group Inc., which at $220 billion is the largest U.S. insurer by market value.
Last Overhaul
Microsoft Corp. and Intel Corp., the biggest makers of computer software and semiconductors, respectively, won spots in the 104-year-old stock benchmark in Dow Jones' last overhaul of the index in 1999. The Journal's managing editor, Paul Steiger, said at the time the changes made the average ``even more representative of the evolving U.S. economy.''
Home Depot Inc. and SBC Communications also went into the index a year ago. Dow Jones removed four older companies whose stocks had lagged the rest of the market.
``I think Cisco would be a fabulous choice if they (Journal editors) think tech is the way the economy is going,'' said Andrew Whittaker, a Lehman Brothers Inc. quantitative analyst who tracks index changes.
The potential problem Dow Jones might have with Cisco is its volatile trading pattern, which would increase the index's swings, said Whittaker, who has forecast at least five additions to the Standard & Poor's 500 Index in the past year.
Whittaker said his preliminary look at the index suggests a pharmaceutical company such as Pfizer Inc. might be added. Pfizer, the world's largest drugmaker, would join Merck & Co. and Johnson & Johnson in the average.
Dow Jones already is reviewing the composition of the index, and might make more than one change. Chase Manhattan Corp., which isn't in the Dow, agreed last month to buy J.P. Morgan & Co, which is. Prestbo said at the time that Dow Jones would consider whether to keep the merged company in the average, and that the company reviews all members when it reviews one.
Honeywell initially said it was in talks to be acquired by United Technologies Corp., also a member of the Dow. Those talks ended when Honeywell received another bid.
Most individual investors recognize the Dow industrials as the main indicator for U.S. stocks, though professional investors use the S&P 500 to track the market and as a benchmark for their own performance.
Still, being added to the Dow is seen as membership in a prestigious club. No matter which stock is chosen, ``it will probably trade up on the news,'' Whittaker said.
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