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Nike, Visa, Goldman Sachs Make Dow Blue Chips ‘Growthier’: McCullough

Nike, Visa, Goldman Sachs Make Dow Blue Chips ‘Growthier’: McCullough

Just when I think I can finally wash my hands of the outdated, irrelevant, 128-year old Dow Jones Industrial Average (^DJI), its stock selection committee announces some tweaks and get me interested all over again.

As much as professionals prefer other benchmarks, "The Dow" is still America's most watched index and today's announcement, of three new members being added to the freshman class for the Fall semester, drives the point home.

"I think the first thing you should note is that it (brings) a much growthier kind of package to the Dow," says Keith McCullough, CEO of Hedgeye Risk Management in the attached video. "That's a very good thing because the Dow is really this kind of slower growth, high dividend yielding beast," he says, noting that it is substantially under-performing other stocks indexes, such as the Nasdaq (^IXIC) and the small cap Russell 2000 (^RUT), by almost ten percentage points this year.

Officially, as of the close of trading Friday September 20th, Alcoa (AA), Hewlett Packard (HPQ) and Bank of America (BAC) will be replaced by Nike (NKE), Visa (V) and Goldman Sachs (GS) respectively in the 30-stock index.

Related: Time to Buy Visa?

As much as expulsion from this elite group is a blow to corporate image, the same cannot be said for stock performance. In fact, McCullough says investors would be wise to use ''newsie days" like this and pick up bargains.

To that point, he says Bank of America is set to have a solid earnings season, thanks to rising interest rates and an improved yield spread (the gap between what it costs banks to borrow and what they pay to depositors.) Unfortunately, the same cannot be said of Hewlett-Packard and Alcoa, which he calls "unexciting, slow moving animals" that he would avoid.

"The thirst for growth in the Dow is a perpetual quest," he says, pointing out that the typically huge, mature companies that make up the index "make it less exciting."

It's also worth noting some other great companies that continue to be kept of the Dow's short list of inductees, including Apple (AAPL), Google (GOOG), and Amazon (AMZN), all of which have high share prices, ranging from $300 to $800, a fact that would skew the price-weighted calculus that makes the Dow unique.

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