Posted on 06/20/2018 7:56:38 AM PDT by Red Badger
After more than a hundred years as a component in the Dow Jones industrial average, General Electric will be replaced by drugstore chain Walgreens Boots Alliance next week.
But GE investors may take solace in the recent history of stock price out performance from the companies booted from the Dow.
On Tuesday David Blitzer, managing director and chairman of the index committee at S&P Dow Jones Indices, said in a statement adding Walgreens to the Dow Jones industrial average will make the index "more representative of the consumer and health-care sectors of the U.S. economy."
"Today's change to the (Dow Jones industrial average) will make the index a better measure of the economy and the stock market," Blitzer said.
The change will occur prior to the open on Tuesday, June 26.
Many will say this change by the index committee at S&P Dow Jones Indices, marks a passing of the baton. GE's industrial manufacturing days are over as the economy shifts to a more service orientation.
Time and time again, new trends replace old ones in the Dow. For example, take Cisco replacing General Motors in 2009 or Nike replacing Alcoa in 2013.
But this theory is not one to base your investing on, recent history shows.
"Lastly, while a negative in the near-term [for GE], we note that recent removals from the index have gone on to outperform the DJIA in the 12-months following the announcement," Goldman's Joe Ritchie said in a note to clients Tuesday.
The most recent removal before General Electric soundly outperformed the S&P 500 in the year after getting booted, according to CNBC data.
AT&T shares rose 15 percent in the 12-months after it got replaced by Apple in the Dow versus the S&P 500's 2 percent decline in the same time period.
Alcoa's stock soared even higher with 96 percent return in the year after its exit.
It seems that by the time the index committee acts to remove an underperforming stock, most of the fundamental deterioration is already priced into the shares and so you see a rebound.
GE shares fell as much as 3 percent in after hours trading following the decision Tuesday. After opening lower on Wednesday, the stock rebounded to near positive.
Investors initially sold off GE shares perhaps due to the recent Wall Street concern over retail shareholder sentiment.
Deutsche Bank's John Inch had warned in January that GE would likely be dropped from the Dow this year and that such a move would hurt its shares.
"We believe headline risk to be the most significant risk factor if GE were to be dropped from the Dow — potentially amplified by GE's high mix of retail investors (roughly 40% of GE's common stock is held by retail investors)," the analyst wrote.
Amen. We used to joke when they changed the name of the Personnel department to the dehumanizing and impersonal "Human Resources" that they should have just gone all in and called it "Carbon Based Unit Control". Engineers come up with stuff like that.
“the new guy undid his predecessor’s plan and implemented his own.”
the thing i found out about ignorant/incompetent managers is that they focused on what they knew (or thought they knew) and ignored everything else.
For example, if a newly promoted manager to a technical division was big on team-building, then he or she would spend all of their energy on arranging team-building “exercises”, dragging everyone else away from their primary duties to waste time on such pointless activities ... pretty much everything else going on in the division was beside the point ...
Well our children may live to see “Artificial Intelligence Resources” Departments replacing “Human Resources”.
Paint the robots brown or black and the Affirmative Action problem is solved. :-)
Yes, we did our fair share of those silly things.
The big problem at GE was that they did not promote from within the division, they brought in people from other divisions that were clueless about their new assignment.
Reinventing the wheel every couple of years.
Saw that happen a few times, which is why I dropped GE as a vendor.
Also saw they try to royally screw me so they were #4 in sales.
Right! Lol. It’s a big world isn’t it.
Forgot to add.
Also went through a Six Sigma exercise. Saw a profitable, if commodity heavy company get gutted. Funny thing is the consultants hired for six sig kept telling me “They are not doing this because of us, they are just using us as the excuse”.
Left two years ago. Miss the old place, but most still there tell me that I made the smart move. Now, corporate is going through another round of layoffs hoping that THIS time they save enough money to make up for all the experience they just handed the competition.
You know I didn’t even address that relationship. Jack even changed relationships between vendors. A big company like GE or Walmart used six sigma to bludgeon vendors. Truly Destructive. In your case they were the vendor you were the client. I can’t imagine having to interface with them. Look at CAT, Cummins or Home Depot you pick. Disaster.
I was buying a common consumable item (Ultra-filtration filter). The rep told me.
1. They had stopped making that style
2. Everyone else had
3. The only thing I could to is either sign a multimillion dollar contract with them or replace all three systems.
I went to a competitor and sourced the membranes. GE rep then came back and said that if I didn’t sign the contract, he would be fired and his family homeless. Signed with the other vendor anyway.
GE builds Engines in Cincinnati, Oh...they sold their Appliances to Haier...
RE: GE builds Engines in Cincinnati, Oh...they sold their Appliances to Haier...
Thanks. Does the lighting division manufacture here or overseas?
How about their Medical Equipment Division do they make them here?
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