General Electric had been a continuous member of the Dow since 1907, that has come to an end replaced by Walgreens. GE has been sick, having to restate of 2016 and 2017 earnings, constant misses and the worse performing Dow stock for years it seems.
General Electric followed last week’s restatement of 2016 and 2017 earnings with first quarter earnings that came in better than already dialed down expectations giving relief to $GE shares. Aviation was the stand out, power the lagard
New GE CEO Flannery hasn’t left the legacy he would have liked
GE was one of the original twelve industrial firms that made up the Dow Jones Industrial Average on May 26, 1896, and a continuous one since 1907.
Tuesday night GE was booted out of the Dow for the pharmacy chain Walgreens. David Blitzer, chairman of the index committee at S&P Dow Jones Indices, said “Today’s change to the DJIA will make the index a better measure of the economy, and the stock market.”
General Electric is out of the Dow Jones Industrial Average after 111 continuous years of membership replaced by Walgreens Boots Alliance (WBA) to that index. The swap is expected to take place next Tuesday.
The market reaction was expected overnight, shares of General Electric fell from the stock’s closing price of $12.95 (-55% over twelve months) to $12.54 (-2.2%). WBA went up as index matchers swapped shares pushing $WBA up overnight.
Why Walgreen’s
The obvious question is why not Amazon? The problem is it is just too big and in that sense is too overwhelming for an index to be sujective.
From Bloomber: Dogged by the same competitive fears plaguing all of retail, the stock declined in 2016, 2017 and again this year, with about $38 billion pruned from its market value since its 2015 high.
The Dow is different from other indexes. A committee chooses members, not an objective, rules-based process. Companies are weighted by price, rather than market value. According to its website, the Dow seeks to maintain “adequate” sector representation and favors a company that “has an excellent reputation, demonstrates sustained growth and is of interest to a large number of investors.”
Here is the current mix of the Dow which gives us an understanding of why they chose Walgreens
For many it is a relief given $GE fall from a grace for other’s it is a symbol of an Amercian era left behind.