DJIA Benefits From Newest Members
By David Wilson
(Commentary)
Princeton, New Jersey, Feb. 1 (Bloomberg) -- In the mathematics of
stock-market indicators, three plus four equals 294.
Three months have passed since the guardians of the Dow Jones Industrial
Average removed four of its component stocks: Chevron Corp., Goodyear
Tire & Rubber Co., Sears, Roebuck & Co. and Union Carbide Corp.
The stocks selected to replace them -- Home Depot Inc., Intel Corp.,
Microsoft Corp. and SBC Communications Inc. -- have done better as a
group than their predecessors. As a result, the average is 294 points higher
than it would have been without the change in membership.
Yesterday's close of 10,940.53 for the Dow industrials was 2.7 percent
above the close for an ``old Dow' average compiled by Bloomberg Financial
Markets. The latter, assuming the change didn't take place, closed at
10,646.58.
Of the four former component stocks, only Sears Roebuck has risen during
the past three months. By comparison, only one of the four new ones has
dropped: SBC Communications, the third-worst performer in the average.
Let's look at what's happened to the companies and their shares since the
change was made. The first number after each company's name is its
percentage change; the second is the number of points that it added to or
subtracted from the corresponding Dow average.
Old Dow Stocks
Chevron (down 8.5 percent/37.92 points): Although higher crude-oil prices
enabled the third-largest U.S. oil company to boost fourth-quarter profit from
operations by 63 percent, they also led to a 55 percent drop in earnings on
U.S. refining and fuel sales from the 1998 period.
The results, released last week, also showed that oil and gas discoveries
amounted to 105 percent of 1999 production. That's down from 109 percent
for 1998.
The San Francisco-based company wants to cut costs by $500 million a year,
and said last week it expects to have eliminated 3,500 jobs by June 30 -- 400
more than it estimated in October. It got a new chief executive Jan. 1, when
Kenneth Derr retired and David O'Reilly, formerly vice chairman, succeeded
him.
Goodyear (down 42.5 percent/85.94 points): The world's largest tiremaker
suffered from falling tire prices, a byproduct of recessions in Asia and Latin
America that cut demand. Fourth- quarter earnings fell to 30 cents a share
from 74 cents in the 1998 quarter, according to the average estimate of
analysts surveyed by First Call/Thomson Financial.
The company is closing plants and firing workers to reduce costs, especially in
Europe, after joining forces with Sumitomo Rubber Industries Ltd. of Japan.
The combination gave Goodyear control of the Dunlop brand in Europe and
North America.
Goodyear, based in Akron, Ohio, built its ``strategy for a turnaround' this
year on consolidating its business, Chief Executive Samir Gibara told
customers at a meeting last month.
Sears Roebuck (up 9.8 percent/13.46 points): The fourth quarter was good to
the No. 2 U.S. retailer, based in the Chicago suburb of Hoffman Estates,
Illinois. Earnings rose 29 percent from a year earlier on a 2.3 percent rise in
sales.
Sears discounted fewer items during last year's holiday season than it did the
previous year. The retailer also set aside less cash to offset credit-card losses;
it's stepped up efforts to collect on cardholders' debts, and become more
selective in issuing cards.
The company plans to put shopping carts in its stores, add quicker check-out
areas and increase the selection of goods in order to bring back shoppers
from other stores, Chairman Arthur Martinez said last month in an interview.
Union Carbide (down 8.2 percent/24.47 points): Shares of the chemical
maker fell as antitrust regulators stepped up scrutiny of Dow Chemical Co.'s
$11.4 billion takeover offer.
The two companies received requests in November from the U.S. Federal
Trade Commission for more information. In December, the European Union's
executive agency said it started ``a full investigation.' Dow Chemical said it
expects to complete the takeover in the second quarter.
Union Carbide's stock cut its losses yesterday after the company said
fourth-quarter earnings more than tripled from the 1998 period. Higher profits
at its basic chemicals unit and at a Kuwaiti joint venture paced the increase.
Shares of the Danbury, Connecticut-based company rose 1 11/16 to 56 in
New York Stock Exchange trading.
New Dow Stocks
Home Depot (up 12.5 percent/69.87 points): The largest U.S. retailer of
home-improvement products sold more floor coverings, paint and other
building materials as home sales set records.
Earnings in the third quarter ended Oct. 31 jumped 46 percent from a year
earlier. Sales at stores open at least a year advanced 10 percent, more than
the Atlanta-based company expected. Analysts expect fiscal fourth-quarter
profit of 25 cents a share, up from 18 cents a year earlier, according to First
Call.
The company's looking to refrigerators, dishwashers and other large
appliances for sales growth. In December, it told investors and analysts that it
will start selling appliances in most U.S. stores this year.
Intel (up 27.8 percent/106.28 points): Personal computer sales surged during
last year's holiday season, and the world's largest maker of computer chips
reaped benefits. Fourth-quarter sales rose 7.9 percent, and earnings before
acquisition-related expenses surpassed analysts' most optimistic forecasts.
This year, sales will rise further as concern about the transition to the year
2000 passes and Microsoft introduces its Windows 2000 computer operating
system, Robertson Stephens & Co. analyst Dan Niles said last week.
The Santa Clara, California-based company plans to increase production and
accelerate a shift to a more efficient chipmaking process by building a $2
billion plant in Chandler, Arizona.
Microsoft (up 5.7 percent/24.60 points): Anticipation of Windows 2000,
successor to the Windows NT software for corporate networks and Web
sites, provided a lift to shares of the world's largest software company.
On Dec. 15, the stock jumped 9.9 percent -- its biggest one- day percentage
increase since April 1992 -- after Microsoft said it completed Windows
2000. The software goes on sale Feb. 17.
Steve Ballmer, who spearheaded many of the company's prior sales efforts,
succeeded Chairman Bill Gates as chief executive in January. Gates became
chief technology officer, a new post.
The company, based in Redmond, Washington, also replied to legal
arguments by the U.S. government and 19 states by saying it didn't break
antitrust laws. A federal judge ruled otherwise, and the two sides are
discussing a settlement before a mediator.
SBC Communications (down 15.4 percent/38.55 points): The stock of the
largest U.S. local telephone company, which bought Ameritech Corp. for
$80.6 billion in October, sank through most of December and January. It
trimmed those losses yesterday by rising 3 7/8 to 43 1/8 on the NYSE.
In an effort to lift the stock price, SBC's board approved plans last week to
repurchase as many as 100 million shares, or about 3 percent of its shares
outstanding. The company said the buyback program will last indefinitely.
Last month, the San Antonio-based company asked permission from the
Federal Communications Commission to start selling long- distance service in
the $6.2 billion Texas market. The state told the FCC yesterday that SBC has
opened its markets to rivals, a requirement to get approval. |
