Why GE Got Kicked Out of the DJIA

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General Electric (ticker GE) is getting kicked out of the Dow Jones Industrial Average (DJIA) as of June 26, 2018.

This is not a surprise to anyone who has been following the stock over the past several years. At its recent price of just under $13, GE is down almost 80% from the high $60 level in 2000 and down 55% over the past year.

This is a sad development for a once prestigious company. It was founded in 1892 by Thomas Edison and was one of the original members of the DJIA when it was created in 1896. In 2005, it was among the most valuable publicly traded companies in the U.S., according to Reuters.

What went wrong? It got too big and complicated. Had too much exposure to financial services going into the 2008 recession. Had too much debt.

The company has cut its dividend and is selling assets, as new CEO John Flannery tries to improve its business prospects. But this will be a long-term process. There is no quick fix for GE’s problems.
The top institutional holders of GE stock are Vanguard, Blackrock, State Street and Franklin Resources. These companies also manage some of the largest mutual funds and ETFs, so you probably have exposure to GE, even if you didn’t realize that. The good news is, most of the downside in the stock is probably behind us. And with the company shrinking, its future impact on these institutional holders will be small.

Being kicked out of the DJIA is not necessarily a death knell for a company. Bank of America (ticker BAC) was kicked out of the DJIA in 2013. Since then, the stock has risen 100%, outperforming both the DJIA and the S&P 500 index, which rose 59% and 62%, respectively, during that same time period. However, BAC’s stock price kept dropping for two years after it left the DJIA, so its exclusion from the DJIA was not a buying signal. GE is also likely to underperform as new management struggles to refocus the company.

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