The Buzz

All markets and investing news all the time

It's good to be a Dow dropout

October 6, 2014: 1:53 PM ET
Dow 30, Dow shmirty. These three stocks have outperformed the blue chips since they were booted from the Dow.

Dow 30, Dow shmirty. These three stocks have outperformed the blue chips since they were booted from the Dow.

The opinions expressed in this commentary are solely those of Paul R. La Monica. Other than Time Warner, the parent of CNNMoney, Abbott Laboratories and AbbVie, La Monica does not own positions in any individual stocks.

There are only 30 stocks in the Dow. It's an exclusive club. So you'd think that getting kicked out of the Dow would be a bad sign for a company.

But that hasn't been the case for the three companies given the boot from the Dow last year.

Hewlett-Packard (HPQ), Alcoa (AA) and Bank of America (BAC) have all outperformed the Dow since they left it.

Shares of Hewlett-Packard , which is in the news today after announcing it would split into two companies, are up more than 60% since it was told to not let the Dow door hit it on the way out in September 2013.

Related: Breaking up is the latest corporate craze

BofA is up about 20%. That puts it on par with the two financials that were added to the Dow 30 last year ... investment bank Goldman Sachs (GS) and credit card processing giant Visa (V).

Nike (NKE) was the other new Dow stock of 2013. And it's the best of that bunch. It's up 40% and recently hit an all-time high following stellar earnings.

But the true standout is Alcoa. The stock has nearly doubled.

Alcoa has benefited from rising demand for aluminum. It also is a winner from Ford's (F) decision to use aluminum for the body of its latest F-150 truck. That should make the vehicle lighter and more fuel efficient.

Alcoa will report its third-quarter results Wednesday. Analysts expect profits to nearly double. It looks like Alcoa bulls can't wait!

And even though Alcoa should no longer be considered the official start to the earnings reporting period (out of respect for my colleague Mark Meinero, I will not use the term "season" since I know it's a pet peeve of his) some investors will still try and make Alcoa's earnings into something bigger than they really are out of sheer habit. (Sorry Catherine Tymkiw!)

Now does this mean that getting removed from the Dow is actually the cause of Alcoa's outperformance? Of course not.

It will be interesting to see if Alcoa, BofA and HP (or the HPs post split) can continue to do this well over the long haul. After all, they were removed with good reason. They were no longer as representative of the U.S. economy and stock market.

And there are plenty of examples of companies that were given the old heave-ho from the Dow and have languished since then. Citigroup (C) has lagged the Dow since it was given its walking papers in 2009. AIG (AIG) will probably never return to the heights it was at before the 2008 financial crisis caused it to be kicked out of the Dow.

Related: AIG trial puts Geithner, Paulson and Bernanke on hot seat for bailout

Eastman Kodak was removed from the Dow in 2004. It eventually filed for bankruptcy. Sears (SHLD) has been in a long decline since its ouster from the Dow in 1997.

But for the past year at least, it didn't matter that Alcoa, HP and BofA are no longer included in the Dow. They are doing fine as more ordinary members of the S&P 500.

So it does look like a company can have a bright future as a Dow dropout. Now if only the same thing could be said for beauty school dropouts.

Fear & Greed
Sponsored by

To view my watchlist

Not a member yet?

Sign up now for a free account
Stupid Stock Move of the Day
#StupidStock Move of the Day! $FEYE up 7% because of $SNE? Yes. It's a cybersecurity company. But has history of losses and sales misses.
Powered by WordPress.com VIP.
Follow

Get every new post delivered to your Inbox.

Join 242 other followers