General Electric Co. (GE.N), its stock gutted as management struggled with a slump that wiped US$120 billion from its value, suffered a crowning ignominy Tuesday as overseers of the Dow Jones Industrial Average kicked the company out of the stock gauge it has inhabited for more than a century.
The one-time industrial powerhouse will be replaced by Walgreens Boots Alliance Inc. (WBA.O), the Deerfield, Illinois-based drugstore chain created in a 2014 merger. The change will take effect prior to the open of trading next Tuesday. Down 26 per cent, GE is the worst performer in the Dow in 2018, as it was last year, as well.
“It was an issue not of if, but when,” said Quincy Krosby, the chief market strategist at Prudential Financial Inc. “The GE that was dominant in the Dow in the 70s and 80s is no longer the same GE.”
The change means the last original Dow member has finally been removed from the benchmark formed in 1896, with GE joining the likes of Distilling & Cattle Feeding, National Lead and U.S. Rubber. GE briefly left the index, but has been in it continuously since 1907.
“Since then the U.S. economy has changed: consumer, finance, health care and technology companies are more prominent today and the relative importance of industrial companies is less,” said David Blitzer, managing director and chairman of the index committee at S&P Dow Jones Indices. Adding Walgreens makes the index “more representative of the consumer and health care sectors of the U.S. economy.”
According to the index manager’s website, the Dow favors a company that “has an excellent reputation, demonstrates sustained growth and is of interest to a large number of investors.” It also seeks to maintain “adequate” sector representation.
GE sank 45 per cent in 2017, compared with a 25 per cent gain in the Dow, as it struggled with weak demand for industrial products from gas turbines to locomotives and oilfield equipment. After the close of exchanges Tuesday, it traded as low as US$12.68 post-market, taking out the US$12.73 level set in late March when it tumbled close to a 9-year low.
"We are focused on executing against the plan we’ve laid out to improve GE’s performance,” the company said in a statement. “Today’s announcement does nothing to change those commitments or our focus in creating in a stronger, simpler GE."
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