Prediction: Nike Will Be Booted From the Dow Jones Industrial Average Within 12 Months and Replaced by One of 2 Consumer-Facing Giants

Change is in the air -- and it has nothing to do with the weather. Earlier this week, S&P Dow Jones Indices oversaw the removal of telecom titan Verizon Communications from the iconic Dow Jones Industrial Average (^DJI 0.03%) and the addition of Google parent Alphabet. It marked the 54th time since the Dow's inception in May 1896 that a company was added or removed.

But S&P Dow Jones Indices isn't finished. Over the next 12 months, brand-name retailer Nike (NKE +5.05%) should be given the boot, with one of two consumer-facing goliaths -- Tesla (TSLA +1.20%) or Airbnb (ABNB +2.89%) -- serving as logical replacements.

Image source: Getty Images.

The clock is ticking for Nike

Arguably, the biggest issue for Nike's tenure as a Dow component is its share price. Unlike the S&P 500 and Nasdaq Composite, which are market-cap-weighted indexes, the Dow Jones Industrial Average is a share-price-weighted index. The higher a company's share price, the more influence it holds within the Dow.

Based on after-hours trading following the release of Nike's fiscal fourth-quarter operating results on June 30, its shares have dipped below $40. Only three Dow components have share prices below $113, and Nike is, by far, the lowest of the bunch. It has minimal influence within the Dow.

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NYSE: NKE

Nike

Today's Change

(5.05%) $2.08

Current Price

$43.13

Key Data Points

Market Cap

$64B

Day's Range

$40.11 - $43.16

52wk Range

$40.00 - $80.17

Volume

1.6K

Avg Vol

25M

Gross Margin

44.06%

Dividend Yield

3.79%

Nike's operating performance isn't doing it any favors, either. Persistent sales weakness in China, spurred by intensifying competition, has weighed on sales, while Nike's initial pivot to direct-to-consumer sales has strained its relationship with wholesalers.

Although Nike has the brand appeal to right the ship, we're likely looking at a multi-year turnaround. This simply won't cut it for a company whose shares have risen by just 21% in nearly 13 years as a Dow component.

Image source: Getty Images.

Expect Tesla or Airbnb to get the call

The committee that adds and removes stocks from the Dow aims to have 30 multinational components that represent the U.S. economy. While removing Nike wouldn't necessitate replacing it with another retailer, there's a good likelihood that the committee will stick to a consumer-driven business.

Tesla offers several benefits to the Dow. Its leading electric-vehicle segment provides a direct connection to consumer spending habits. Don't forget that General Motors was a Dow component until June 2009.

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NASDAQ: TSLA

Tesla

Today's Change

(1.20%) $5.06

Current Price

$425.66

Key Data Points

Market Cap

$1.6T

Day's Range

$418.20 - $432.84

52wk Range

$288.77 - $498.83

Volume

79.5K

Avg Vol

55.7M

Gross Margin

19.07%

Additionally, Elon Musk's trillion-dollar company would bolster the Dow's energy exposure, which is currently limited to Chevron. Tesla's burgeoning energy generation and storage operations can add utility-esque exposure for an index that has none.

Meanwhile, Airbnb would give the Dow a direct link to an estimated $11.6 trillion travel and tourism industry. Though Walt Disney offers some travel industry connections via its theme parks and cruise ships, Airbnb's travel and hosting platform provides a comprehensive view of consumers' discretionary spending.

Most importantly, Tesla and Airbnb would have a meaningful influence within the Dow given their high share prices of $420.60 (Tesla) and $143.10 (Airbnb), as of the closing bell on June 30. It also doesn't hurt that Tesla's and Airbnb's respective shares have handily outperformed Nike in recent years and offer the Dow the potential for long-term upside.