Only 30 stocks are included in what is arguably the most prestigious index of all – the Dow Jones Industrial Average. But the stocks that are in the Dow today won’t necessarily be those that are in it later.
S&P Global’s Index Committee may substitute a stock at any time. Their main limitations are that transportation and utility stocks cannot be included in the Dow Jones Industrial Average. There are two other Dow Jones indices for these stocks. Dow stock must also be based in the US and generate more sales domestically than in other countries.
However, the index committee typically tries to ensure that a wide range of industries are represented in the Dow. He also favors large-cap stocks that have achieved consistent growth, are highly regarded, and are widely followed by investors.
My prediction is that the Dow Jones Industrial Average will change quite a bit over the next few years. Here are three stocks I believe will be in the Dow by 2030.
Alphabet (GOOG -1.78%) (GOOGL -1.83%) is the only stock with a market cap over $1 trillion not included in the Dow Jones Industrial Average. But I don’t think size alone will result in Alphabet eventually being included in the index. Instead, my guess is that the rise of two disruptive technologies will do so.
While Alphabet is best known for its online search dominance, I think the company’s biggest opportunities lie in artificial intelligence (AI) and quantum computing. Both of these technological advances will be highly disruptive over the next decade and beyond.
OpenAI’s ChatGPT has overshadowed Alphabet’s AI efforts for the past few months. However, I suspect that will soon change once Google launches its Bard chatbot. I also see Alphabet’s quantum computing initiatives as the most overlooked reason to buy the stock.
There are currently three companies in the Dow that are leaders in AI: Apple, IBM, and Microsoft. Two of them, IBM and Microsoft, also have advanced quantum computing efforts. Ditto for a few other Dow stocks — Honeywell and Intel. I predict that AI and quantum computing will deserve stronger representation in the Dow by 2030. Alphabet will be the logical choice.
The Dow Jones Industrial Average already includes several retail-related stocks. However, the index currently omits Amazon (AMZN -1.65%), the world’s largest e-commerce retailer and the fourth-largest stock by market cap traded on US exchanges.
E-commerce accounted for 14.6% of total U.S. retail sales last year. I think that percentage will increase significantly by 2030. That could put pressure on S&P Global’s index committee to include Amazon in the Dow Jones.
However, there could be an even better reason to add Amazon to the blue-chip index within the next seven years. The bulk of IT spending stays on-premises. That’s likely to change in the not-too-distant future as companies move their apps and data to the cloud.
Sure, the Dow already includes a few cloud stocks. But Amazon Web Services is by far the largest cloud hosting platform. It will no doubt get much bigger in the years to come. My guess is that the increasing importance of the cloud, coupled with growth in e-commerce, will catapult Amazon into the Dow.
3. Vertex Pharmaceuticals
One might think that the healthcare sector already has enough representation in the Dow. There are currently five healthcare stocks in the index. However, I think there is room for one more. And my vote would go to Vertex Pharmaceuticals (VRTX 0.12%).
Aren’t there many healthcare stocks with market caps larger than Vertex that aren’t included in the Dow? Yes. But I think Vertex will be much bigger by 2030. I even assume that the biotech will at least double in size by then.
Vertex’s cystic fibrosis (CF) franchise sales are expected to grow significantly in the coming years. The company could soon move beyond CF with anticipated regulatory approvals for Exa-Cel to treat sickle cell anemia and beta-thalassemia. It hopes to gain regulatory approval for the non-opioid pain reliever VX-548 in the near future.
By 2030, Vertex could commercialize a therapy to treat APOL1-mediated kidney disease. It could also have a functional cure for type 1 diabetes.
I’ll concede that Vertex is probably less likely to be included in the Dow than Alphabet and Amazon. But if the index committee wants to add another healthcare stock or replace an existing one, Vertex could have a good chance of making it into the Dow.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Keith Speights has held positions at Alphabet, Amazon.com, Apple, Microsoft and Vertex Pharmaceuticals. The Motley Fool has positions in and recommends Alphabet, Amazon.com, Apple, Intel, Microsoft, S&P Global, and Vertex Pharmaceuticals. The Motley Fool recommends the following options: long January 2023 $57.50 calls on Intel, long January 2025 $45 calls on Intel, long March 2023 $120 calls on Apple, short January 2025 $45 puts on Intel, and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.