Getting bumped from the Dow might not be the worst thing to happen to original member and fading American industrial powerhouse General Electric.
How’s that? The stocks removed from the 30-stock Dow Jones industrial average since 1999 have posted better returns than incoming stocks in the year after the switch, Bespoke Investment Group data show. While the median return for the 17 stocks removed from the Dow were flat, or 0 percent, that’s far better than the median drop of 6 percent for the stocks added to the 122-year-old index.
In the past five years, the gains of the stocks removed from the Dow have outpaced the newcomers by an even wider margin. A year after AT&T was replaced by Apple in March 2015, for example, its shares rose more than 17 percent vs. A 17 percent drop for the iPhone maker, Bespoke data show. And the trio of stocks let go from the Dow in September 2013 – Alcoa, Hewlett-Packard and Bank of America – rose 90 percent, 69 percent and 21 percent, respectively, vs. Gains for Dow newbies Nike, which rose 16 percent; Goldman Sachs, which gained 12 percent; and Visa, which jumped 8 percent.
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The takeaway: It means GE, currently being restructured by new CEO John Flannery, isn’t necessarily a sell candidate when it exits the Dow after Monday’s close of trading. The stock already has been cut in half in the past year and sells for less than seven times earnings, according to Bloomberg, vs. A market PE of closer to 20. On the flip side, the so-called “Curse of the Dow” – or the tendency of new entrants to perform poorly – could befall the blue-chip index’s newest member: drug retail chain Walgreens Boots Alliance.
“We wouldn’t go so far as to say that the removal of GE from the Dow warrants a call to buy the stock, but it certainly shouldn’t be used as an excuse to sell it,” the Bespoke report concluded.