General Electric Out, Walgreens In
This post was written by Audrey Keohane, a Summer Intern here at Woodside Wealth.
There have been some interesting changes made to the Dow Jones Industrial Average recently. Once the most valued company in the United States, General Electric is being dropped from the thirty companies that make up the index. It was announced on June 19th that General Electric will be replaced by Walgreens Boots Alliance, Inc. General Electric was one of the original members of the index, being a part of it since 1907. The chairman of the index has explained that the reason behind the switch was to include a better representative of the health care sector to get a better measure on the economy and the market. The action shows how far General Electric has fallen from being one of the more important companies in the U.S.
The company, who’s stock was the cheapest within the index, has been on the decline over the past few years and this news shows yet another setback in their efforts to rise up once again. Between competition and the increase of technology-driven companies, General Electric has not been able to maintain their usual position in the economy. Their share price has dropped 55% over the past year as the result of switching leaders, cutting dividends and restructuring the company.
Walgreens dates all the way back to 1901 but has made recent initiatives to expand the company. It has merged with Alliance Boots in Europe and has bought out stores from Rite Aid, a competing pharmacy. While General Electric has twice the market value of Walgreens, they both make about the same in annual revenue. The decision to switch the companies comes from the index committee, who have made decisions like this in the past. In 2015, they brought in Apple to replace AT&T and they dropped Alcoa, Inc. in 2013 and General Motors in 2009.
It is important to address a common mistake about Dow Jones that is often made by investors. While many people believe it is similar to the stock market as a whole, it is extremely different. There are only 30 companies that make up the Dow Jones index and is intended to represent different industries using only one or two companies. This is the reason that, occasionally, changes need to be made and companies need to switch in order to better represent the industry they are in. With its steadily declining prices and inability to keep up with competitors, General Electric can no longer be considered the best representative of the industry and therefore must be dropped.