UnitedHealth to join Dow as only healthcare insurer

NEW YORK (Reuters) - UnitedHealth Group will replace Kraft Foods Inc in the Dow Jones industrial average <.DJI>, effective at the close of markets on September 21, S&P Dow Jones Indices said on Friday.

UnitedHealth is the nation's largest health insurer, joining pharmaceutical companies Pfizer Inc and Merck & Co among the Dow's healthcare stocks. Insurance is already represented by Travelers Cos , though UnitedHealth will be the only insurance stock with a healthcare focus.

"We believe it is an industry that needs to be represented in the Dow," said David Blitzer, chairman of the index committee at S&P Dow Jones Indices in New York. On a conference call, Blitzer added that the lack of a healthcare insurance stock was "something of an issue" for the committee.

The group has been volatile in recent years because of President Barack Obama's healthcare reform law, as well as because of aging U.S. population demographics, which could increase demand for long-term healthcare options.

"To me, it just shows the sector is gaining the kind of importance and visibility with the Street that it should be getting," said Ana Gupte, an analyst at Sanford Bernstein in New York. "I think it's pretty clear that private-public partnerships are the future."

UnitedHealth's market cap of more than $55 billion is well below other companies that are seen as popular choices to become Dow components, including Apple Inc , the most valuable U.S. company, and Google Inc .

"Google and Apple are very popular stocks, but given the way the Dow is calculated as a price-weighted index, they could potentially distort the Dow and I don't think we would be doing a service by adding them," said Blitzer.

Both Apple and Google have share prices above $600. International Business Machines , the fourth-biggest stock in the Dow by market cap, has a weighting of 11.8 percent in the index due to its $200-plus share price, however that will drop to 11.71 percent after the changes.

UnitedHealth will have a weighting of 3.06 percent when it is added, according to Birinyi Associates.

Shares of UnitedHealth rose 1.3 percent to $54.58 and are up 7.9 percent so far this year. Kraft slid 0.5 percent to $39.93.

The removal of Kraft follows the company's plan to split itself into a snack company called Mondelez International and a North American grocery business with the Kraft name.

Noting that Mondelez will be significantly smaller than Kraft and that the majority of Mondelez's revenue will come from outside the United States, Blitzer said that "if a stock is clearly not eligible to be added, we'll consider removing it, especially if we see a better or more interesting stock that's eligible to go in."

Kraft has been in the Dow since September 2008, when it replaced American International Group Inc amid the financial crisis. Food stocks will still be represented in the Dow, which has 30 components, by Coca-Cola Co and McDonald's Corp .

(Editing by Leslie Adler, John Wallace and Sofina Mirza-Reid)