Why is GM Still Trading?

Despite being on the brink of bankruptcy in the next few days, Government Motors.. uhh.. General Motors (GM) continues to trade above $1 which has Jim Cramer asking why have we not suspeneded trading yet?! Seriously, who is buying this stock today? We would love to know.

The next important question is when will GM be replaced in the Dow Jones Industrials Average and which stock will be added? CNBC has a nice rundown of the possibilities. The article features a very non-scientific survey with the predicted winner being Apple (APPL) followed by Abbott Labs (ABT). Hopefully the selection committee will not jump on the ever popular Apple which would only jinx future performance for the beloved stock, there is already plenty of technology exposure in the Dow as it stands currently.

In our opinion, the addition should be made in the area of financials or healthcare. Our pick in the financials space goes to Wells Fargo (WFC). Second financial pick would be Goldman Sachs (GS) which would be fitting since they secretly run the world.

In the healthcare space the Abbott Labs pick makes a lot of sense followed by Amgen (AMGN). We think there is an outside chance of adding a discretionary stock, Amazon (AMZN) would probably be a mistake but another remote possibility is Target (TGT).

As noted in the CNBC article, the elimination of GM would be a perfect opportunity to also eliminate Citigroup (C)! Citigroup is currently trading under $4 and in case you didn't know, the Dow Jones Industrials Average is a price weighted index as opposed to the market cap weighting used by the S&P. This means that due to their low prices, GM and Citigroup have almost NO influence on the Dow at this point. At over $400 a share it also questions the CNBC voters who believe Google should be added to the Dow... probably not going to work...


Speaking of the far superior, market weighted index, the S&P 500, GM will also need to be replaced in this index. The stock that gets added to the S&P could see a decent pop on the news given the amount of money that is allocated to track the S&P Index and its underlying holdings.

Our votes for possible additions to the S&P go to Visa (V), assuming they have been around long enough to qualify, followed by Ross Stores (ROST) and then Western Digital (WDC).

The Dow pick is very challenging given that there are "no rules for component selection." S&P actually has some requirements that are followed. It is hard to imagine that General Motors meets any criteria these days, it is only a matter of time.