Analysts mull replacements for GM, if dropped from Dow index

NEW YORK (MarketWatch) -- With General Motors Corp. possibly headed into government-sponsored bankruptcy, the automaker's standing as one of 30 members of an exclusive club -- the Dow Jones Industrial Average -- is now viewed as shaky.

Goldman Sachs Group Inc. (NYSE:GS - News) is among the picks of analysts weighing in on likely replacements.

General Motors (NYSE:GM - News) and another Dow component, Citigroup Inc. (NYSE:C - News) , were days ago dropped from Dow's global stock index. News Corp. (NasdaqGS:NWS - News) , the owner of the index as well as of MarketWatch, citied market conditions for their ouster.

Pulling a company from the global index is often a "trial balloon" for an eventual ousting from the Dow industrials, said Doug Roberts, chief investment strategist for Channel Capital Research.

Among the five Dow stocks to close below $10 this year, GM on Friday closed at $2.10 a share, just days after the White House forced GM CEO Rick Wagoner to step down. President Barack Obama has said if a plan to restructure the automaker fails, his administration is ready to let the company slide into a structured bankruptcy.

"The Dow has lower turnover than a Park Avenue co-op building, and is just about as difficult to get into," said Nicholas Colas, chief market strategist at BNY ConvergEx Group, noting that the blue-chip index has changed less than one name a year since it started more than 100 years ago.

Goldman Sachs tops Colas' suggested list of compelling replacements for GM, saying the price of its stock, which on Friday traded at about $114, makes it a logical fit, given the Dow is price-weighted.

"It will be one of the first large banks to hand back TARP money, and will benefit from increased capital markets activity," he said.

Art Hogan, chief market strategist for Jefferies & Co., believes a transportation-type company would be the most suitable replacement for GM, and points to delivery companies FedEx Corp. (NYSE:FDX - News) and United Parcel Service Inc. (NYSE:UPS - News) as suitable candidates.

Apple Inc. (NasdaqGS:AAPL - News) is another company with a big stock price "that could really impact the Dow," said Colas of the consumer technology company. "Steve Jobs' uncertain health may sway the Dow editors, but who can deny this company's consistently deft hand at making happy, shiny consumer tech products," said Colas.

Another potential candidate from the financial sector would be Wells Fargo & Co. (NYSE:WFC - News) , the inclusion of which would "give the Dow more leverage to a recovery in the mortgage and housing markets," said Colas.

The technology sector would be a safe bet for potential Dow replacements, said Roberts, who points to Cisco Systems Inc. (NasdaqGS:CSCO - News) as a likely candidate.

Colas agreed. "Cisco fits the bill as one of the most methodical and dominant companies in technology. Not a flashy tech name, but great execution and sure to benefit from global recovery in tech spending," he said.

Other technology contenders on Colas' list include Oracle Corp. (NasdaqGS:ORCL - News) , especially in light of the business software company's recent decision to start paying a dividend, "since many Dow stocks have a payout."

Internet search engine Google Inc. (NasdaqGS:GOOG - News) would also make sense, according to Colas, pointing to the company's $300-plus share price. "That alone may scare off the Dow committee. But there is no doubt of Google's dominance in its business, and its ability to stay relevant for a long time," said the analyst.

Away from the financial and tech sectors, Colas points to agricultural products giant Monsanto Co. (NYSE:MON - News) as his "favorite dark horse for inclusion." Although Monsanto is not as well known as other contenders, Colas says "its technology and competitive advantage would be unique in the Dow."

Beyond GM, Citigroup Inc. (NYSE:C - News) and Bank of America Corp. (NYSE:BAC - News) are also viewed as likely to get the boot, with Hogan also pointing to Wells Fargo as a potential replacement candidate. US Bancorp (NYSE:USB - News) and MasterCard Inc. (NYSE:MA - News) as possibilities.

On Friday, stocks meandered between gains and losses after the March jobs report, which had the unemployment rate climbing to 8.5%, the highest since November 1983. See Economic Report.

Energy and financials fronted sector gains, with the Dow Jones Industrial Average (DJI:^DJI - News) gaining 39.51points, or 0.5%, to end at 8,017.59, giving it a weekly advance of 3.1%. The S&P 500 Index climbed 8.12 points, or 1%, to 842.5, up 3.3% from the week-ago close. The Nasdaq Composite (COMP - News) rose 19.24 points, or 1.2%, to close at 1,621.87, a weekly gain of 5%.