The Dow Jones Industrial Average on June 8 will begin including Cisco Systems Inc. on its list of 30 major stocks selected to reflect the overall U.S. stock market.
Cisco will join other information technology companies, such as Microsoft Corp. and Intel Corp., and communications companies, including Verizon Communications Inc. and AT&T Inc.
Cisco's inclusion is partly a result of the economic downturn and a decision to drop General Motors Corp., which entered bankruptcy protection today. A bankruptcy filing disqualifies a stock from inclusion on the list, regardless of its history, said Robert Thomson, managing editor of the Wall Street Journal and editor-in-chief of Dow Jones, in a statement.
Thomson oversees the makeup of the Dow, which was created by the co-founder of the Dow Jones news service and the Journal Charles H. Dow in 1896, using 12 railroad stocks as a barometer of the overall stock market. The average will also replace troubled Citigroup Inc. with The Travelers Companies on June 8. Citigroup had spun off Travelers in 2002.
Thomson called Cisco a fitting addition because its communications and networking products “are vital to an economy and culture still adapting to the Information Age – just as automobiles were essential to America in the 20th Century.”
GM was on the list for 83 years, exceeded only by General Electric Co., which has been on the list steadily since 1907. Intel and Microsoft were the first companies to join from the Nasdaq stock exchange in 1999.
While the Dow is called an average of the 30 stocks, it is really not technically an average, since a special calculation is made to avoid distortions when companies split their shares, according to the Dow Jones Web site.
About two-thirds of the companies on the list are manufacturers of industrial and consumer goods, according to Dow Jones. The others represent a diversity of companies that include information technology, although Cisco is moving further into consumer goods as well as more basic networking and communications equipment with its home-based networking gear.
Zeus Kerravala, an analyst at Yankee Group Inc., and a longtime industry tracker of Cisco, called the move a “feather in Cisco's cap” and an indication of Cisco's financial stability. Inclusion on the list could even help sway some networking customers to buy from Cisco over competitors, he said.