General Electric (GE - Free Report) , the American multinational conglomerate, and the last original company from the 1986 Dow, is no longer on the 30-stock index. After 110 years, GE was booted off the Dow yesterday and will be replaced by pharmacy giant Walgreens Boots Alliance (WBA - Free Report) .
General Electric was once the American golden child. The company, which was founded by Thomas Edison, was popular for making consumer products and industrial machinery. GE was the first to invent or commercialize products such as the famous lightbulb and the electric fan. In August 2017, former CEO Jeff Immelt stepped down from his position. Since then, what once was a legendary company has been in a downward spiral. According to Forbes, Immelt lacked vision for his company and hardly led GE into new growth markets during his tenure. The company’s performance was poor during Immelt’s time and the stock fell 30% since he became CEO in 2001.
General Electric has been the only company to be on the Dow continuously since 1986, even though others have come and go. According to CNBC, this change will have a positive impact and make the index a better measure of the economy and the stock market.
It can be seen that GE as a whole hasn’t been doing so well, as shares have fallen 55% in just over a year. After the formal removal on June 26, we could potentially see the economic situation of the United States shift in regards to adding a healthcare company to the Dow.
According to David Blitzer, the chairman of the S&P’s index committee, industrial companies like GE are not really prominent in the American economy anymore, whereas healthcare, banks, tech and consumer companies are the front runners. That is why the 30 most recent public companies that are included in the Dow are those which are boosting the economy and making a difference to the index. The company with the lowest share price on the Dow is none other than GE. The company’s share price is at $12.98 per share during intraday trading Tuesday, whereas the highest price on the Dow belongs to Boeing (BA - Free Report) at $343.50.
The Dow is a price weighted index, which means the higher the price of the stocks, the better the influence of the direction that the Dow is headed in. That is why taking GE out of the index and adding Walgreens will likely better the direction and success of the Dow. Just today, Walgreens shares have gone risen 4.82% so far, hitting a high of $68.26 per share.
This replacement will be the first big one since 2015, when Apple (AAPL - Free Report) replaced AT&T (T - Free Report) . We could potentially see a change in the consumer goods sector of the Dow with Walgreens’ addition. Since the Dow will and currently has companies that do well in the economy, the addition of a power house sector could make or break the future of the popular index.
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