Breaking News
Ad-Free Version. Upgrade your experience. Save up to 40% More details

Analysis - Dow-ned but not out: Expulsion no body blow for GE shareholders

Stock MarketsJun 20, 2018 05:20
Saved. See Saved Items.
This article has already been saved in your Saved Items
© Reuters. FILE PHOTO: The General Electric logo is pictured on the General Electric offshore wind turbine plant in Montoir-de-Bretagne

By Noel Randewich

(Reuters) - General Electric Co's (N:GE) expulsion from the elite Dow Jones Industrial Average may be a bitter pill to swallow for shareholders, but it could be little more than a publicity blow for investors in the 126-year-old struggling U.S. conglomerate.

While the Dow index of 30 top-shelf U.S. corporations is arguably more well known, professional investors bet much more money on what happens to the S&P 500, an index in which the one-time leading U.S. company has only a tiny influence. GE's drop from the Dow will thus likely not pose a risk of wide selling pressure by indexed investment funds.

"There's only a small group of investors who actually target their investing to the Dow Jones Industrial Average," said Rick Meckler, a partner at Cherry Lane Investments, a family investment office in New Vernon, New Jersey. "All in all, I don't think it's meaningful to investors."

Indeed, investors in GE might look on the move as the least of their worries. Struggling with weak profits and facing calls to be broken up, GE shares have already dropped 15 percent this year.

GE reached its peak share price in late August 2000, about a year before longtime Chief Executive Jack Welch turned over the reins to Jeffrey Immelt. The stock has fallen more than 75 percent since.

Not even its rich dividend has cushioned the dismal performance: Including reinvested dividends, GE has delivered total losses of 61 percent during that time, while the Dow has offered up gains of 240 percent on the same basis.

In the latest blow, S&P Dow Jones Indices said on Tuesday that GE, an original member of the Dow when it was formed by Charles Dow in 1896 and a continuous member since 1907, will be replaced in the 30-component stock average by drug store chain Walgreens Boots Alliance Inc (O:WBA) prior to the start of trading on June 26.

GE fell 1 percent in extended trade following the announcement, while Walgreens jumped 3 percent.

While negative sentiment caused by the elimination of the company from the Dow could lead to more selling of its shares on Wednesday, investors predicted that GE's removal would prompt little reaction from major investment funds.

"Symbolically, this indignity marks GE's fall from grace," said analysts at RBC. "However, given that the DJIA is a price-weighted index, GE now represents less than one-half of a percent of the overall index with its current stock price sitting below $13 (9.88 pounds)."

GE is now the sixth smallest member of the Dow by market value, and it sports the index's lowest stock price, making it the least influential component of the price-weighted average.

About $20 billion is invested in exchange traded funds tied to the Dow, the vast majority in the SPDR Dow Jones Industrial Average (SI:SPDR) ETF Trust (P:DIA), according to Lipper data.

By comparison, ETFs that track the S&P 500 have assets of around $380 billion. That means GE's exit from the Dow next week will trigger a relatively small amount of selling by passively managed funds reconfiguring their holdings.

Underscoring the greater heft of the S&P 500, Twitter Inc (N:TWTR) surged 5 percent to a record high on June 5 after it was announced that the social media network would join that index.

The largest U.S. corporation by stock market value during most of the 1990s and until it was overtaken by Exxon Mobil Corp (N:XOM) in 2005, GE's market capitalization now stands at $118 billion, less than 15 percent of Apple Inc's (O:AAPL) size.

GE is now tied with 3M Co (N:MMM) as the Dow components that are least favoured by stock analysts, according to Thomson Reuters data. Following GE's recent warning that it might not be able to pay its 2019 dividend, just five analysts recommend buying shares in GE, compared with three who recommend selling and eight with neutral ratings.

Analysis - Dow-ned but not out: Expulsion no body blow for GE shareholders

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
Sign up with Email