UnitedHealth's Addition to DJIA Signals Rising Importance of Healthcare Insurers to U.S. Economy

Equities Editors Desk |

UnitedHealth's Addition to DJIA Signals Rising Importance of Insurers to U.S. EconomyWhile the dropping of Kraft (KFT) from the Dow Jones Industrial Average may not be a surprise--given the food company's spin-off plan would drastically reduce its size--the addition of UnitedHealth (UNH) signifies the growing influence of the healthcare insurance industry on the U.S. economy.

While pharmaceuticals are well represented on the Dow by industry giants like Pfizer (PFE), Merck (MRK), and Johnson & Johnson (JNJ), the index does lack an insurance company focused in healthcare.

Kraft was added to the Dow industrials in September of 2008, replacing AIG (AIG). Since its inception in 1896, the index has changed components 49 times, with the most recent move being in 2009 when Travelers (TRV) replaced Citigroup (C), and Cisco Systems (CSCO) replacing General Motors (GM).

Of the possible candidates that could have replaced Kraft, the most notable names on the list include Apple (AAPL) and Google (GOOG). However, due to the fact that the Dow is based on a price-weighted average, the two tech giants may have skewed the calculation of the index. Apple, the most valuable company in the world's history by market cap, already carries disproportionate influence on the cap-weighted S&P 500 as well as the Nasdaq.

UnitedHealth's inclusion into the index will take effect on September 24, and is not expected to change the level of the Dow. UnitedHealth is currently trading at around $54 per share and has a market cap of $55.7 billion. Kraft currently is trading around $40 per share, and has a market cap of about $70.8 billion. The spin-off of its North American grocery business is expected to be completed by the end of 2012.

Calculating the Dow

The stock index was originally calculated by totaling the prices of all of the stocks in the DJIA and then dividing that sum by the total number of stocks in the Dow. The same basic calculation is done today, but the divisor is no longer the total number of stocks in the DJIA.

The divisor has been adjusted over the years to reflect changes to the stock index since its founding. Stocks have been added to the Dow, and some companies have split their stock one or more times. Other companies have gone out of business and been removed from the DJIA.

The divisor is recalculated after any change is made to the stock index. The divisor for the Dow is published daily by the Wall Street Journal.

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Companies

Symbol Name Price Change % Volume
AAPL Apple Inc. 113.14 0.96 0.86 22,171,036
AIG American International Group Inc. New 59.39 0.99 1.70 3,453,476
C Citigroup Inc. 47.38 1.58 3.44 15,350,959
CLI Mack-Cali Realty Corporation 27.22 0.00 0.00 445,041
CSCO Cisco Systems Inc. 31.68 0.29 0.92 16,092,771
GM General Motors Company 31.91 0.43 1.35 4,382,641
GOOG Alphabet Inc. 779.65 4.64 0.60 692,096
JNJ Johnson & Johnson 118.27 1.00 0.85 3,413,578
MRK Merck & Company Inc. (new) 62.44 0.53 0.85 6,031,287
PFE Pfizer Inc. 33.99 0.67 2.00 14,193,090
TRV The Travelers Companies Inc. 114.67 0.80 0.70 612,993
UNH UnitedHealth Group Incorporated (DE) 139.64 1.32 0.95 1,478,864

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