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Alcoa dumped from Dow Jones Industrial Average after 54 years

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Tuesday, Sept. 10, 2013, 1:12 p.m.
 

The Dow Jones industrial average will dump Alcoa Inc. after 54 years because of its sagging stock price, leaving Pittsburgh without a presence in the stock market's popular barometer for the first time in more than a century.

“It's a punch in the nose for (Alcoa's) image as a keystone producer of raw industrial materials,” said Greg Drahuschak, market strategist for Downtown financial services firm Janney Montgomery Scott.

But Drahuschak and other experts say the move will have little tangible impact on Alcoa or the ongoing transformation of the Pittsburgh region's economy.

S&P Dow Jones Indices said on Tuesday that it will replace Alcoa with sporting goods and apparel giant Nike Inc. on Sept. 23. That day, Visa Inc. and Goldman Sachs Group will replace Hewlett-Packard Co. and Bank of America.

“The index changes were prompted by the low stock price of the three companies slated for removal and the Index Committee's desire to diversify the sector and industry group representation of the index,” S&P Dow Jones Indices said.

Alcoa's shares closed at $8.05, the lowest on the Dow, down 3 cents from Monday's closing price and 18 percent below last September's 52-week high of $9.84.

Alcoa traditionally is of keen interest to investors because it is the first Dow company to report quarterly earnings.

The 30 companies on the Dow often are referred to as “blue chip” stocks, with the chosen few selected to best reflect the makeup of the nation's economy. As recently as two decades ago, three manufacturing companies with Pittsburgh ties were listed on the Dow: Alcoa, U.S. Steel and Westinghouse Electric.

“What I find humorous is that they even call it the ‘industrial average' anymore,” said analyst Charles Bradford, head of investment research firm Bradford Research in New York.

Once Alcoa is off the list, the “industrial” makeup of the index will slip to 19 percent. Technology will represent 19 percent, while health care will make up 16 percent.

Alcoa's headquarters are in New York, but many of its operations remain in Pittsburgh. It has been listed on the Dow since 1959.

Alcoa reported a net loss of $119 million on revenue of $5.85 billion in this year's second quarter, with strong demand for aluminum in automobiles and aircraft minimizing the losses. It has remained barely profitable during the past five years; its last strong year was in 2007 when it turned a $2.56 billion profit on record revenue of $29.2 billion.

“We felt Alcoa's slot could be better used for something else,” said David Blitzer, managing director and chairman of S&P Dow Jones Indices' index committee, noting that the industry Alcoa represents — mining and materials — makes up about 3 percent to 3.5 percent of the overall stock market.

“The composition of the Dow Jones industrial average has no impact on Alcoa's ability to successfully execute our strategy, and we remain focused on delivering shareholder value,” Alcoa said in a statement. “We are focused on the things we can control.”

Robert P. Strauss, an economics and public policy professor at Carnegie Mellon University, said Alcoa could suffer but said it will remain listed on the S&P 500 index — a broader gauge of the stock market. Some index mutual funds tied to the Dow would be forced to sell Alcoa stock, but funds tracking the S&P 500 outnumber Dow funds 1,338 to six, according to data from Morningstar, an investment research firm.

“Could it give the company less pizzazz and less ability to attract the best and brightest talent? Maybe,” Strauss said. “But it will still be publicly listed and able to raise capital, so from that standpoint, I don't see any meaningful (negative) financial impact in the short term.”

The Associated Press contributed to this report. Tom Fontaine is a staff writer for Trib Total Media. He can be reached at 412-320-7847 or tfontaine@tribweb.com.

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