Opening on the Dow Index Raises New Tech Possibility

General Electric’s pending $54-billion takeover of fellow Dow Jones industrial average component Honeywell will present the keepers of the Dow index with a slot to fill.

Changes in the 30-stock Dow are relatively rare, because Dow Jones & Co. emphasizes the index’s long history (dating back to 1896) and continuity.

But like the Standard & Poor’s 500, the Dow has gained more tech members in recent years.

The editors of Dow Jones’ flagship newspaper, the Wall Street Journal, are the keepers of the Dow index.

They made the biggest single move to boost the tech weighting of the Dow in October 1999, adding the index’s first-ever Nasdaq stocks, Microsoft and Intel, along with SBC Communications and Home Depot.

Sent to the showers in that change were four longtime Dow stocks: Chevron, Goodyear Tire, Sears and Union Carbide.

The substitutions left the Dow with five tech components--Intel, Microsoft, IBM, Hewlett-Packard and Kodak, or seven if AT&T; and SBC are included.

Critics of the Dow say Dow Jones should have added Intel and Microsoft years ago. That would have fueled much larger gains in the 30-stock index in the 1990s.

But when the editors of the Journal select components for the Dow, “It’s not an attempt to pick a hot-stock index,” Dow Jones spokesman Richard Tofel said in a recent interview. “They look to maintain the average as an excellent barometer of the broad U.S. economy and the broad U.S. market,” he said.

So which stock should replace Honeywell in the Dow?

The short list of potential new Dow members, as proposed by several Dow watchers, includes tech stalwarts Cisco Systems, Sun Microsystems, Oracle and Lucent Technologies; Internet and entertainment giant AOL-Time Warner; insurer American International Group; and medical equipment maker Medtronic.

With the largest market capitalization--$275 billion--of any current non-Dow stock, computer networker Cisco is the “obvious choice,” said Richard Moroney, editor of the newsletter Dow Theory Forecasts in Hammond, Ind.

Technology stocks may be in retreat for the moment, he said, but “hardly anyone argues that that’s not going to be an important group going forward.”

Other experts argue that Dow Jones might shy away from Cisco not only because its stock has fallen more than 50% from its March peak but also because of doubts raised recently about the quality and sustainability of its earnings.

“What I’d be afraid of with Cisco is whether you’re going to catch them after the peak,” said Messod Daniel Beneish, an associate finance professor at the University of Indiana who has studied both the Dow and the S&P.;

Insurance giant AIG, a $230-billion market-cap powerhouse, may be the consensus non-tech alternative. Observers noted that the Dow’s only insurance representation is that of the former Travelers Group operations now within Citigroup.