Last week, the Dow Jones Industrial Average booted General Electric
The ouster was just the most recent setback for the troubled GE. Once the world's most valuable company and a driver of American industry, GE has been in a long, gradual decline after a stream of bad investment decisions, accounting errors, inefficient structuring, and legal woes. GE was the worst performer on the Dow two years running, down 26 percent in 2018, and shedding over half its value in the past 12 months.
Yet removal from the Dow is perhaps not such a bad thing for GE after all. A report from Bespoke Investment Group showed that stocks removed from the Dow Jones Industrial Average since 1999 have tended to post better returns a year later. While the median return for the 17 stocks that have been removed from the Dow was 0%, this is a better result than the 6% dip stocks added to Dow experienced. Indeed, for companies removed in the past 5 years, the trend seems even better. When Apple
Some analysts believe existing investors should hold onto the stock, but not buy, while others believe GE's removal might actually be a buying opportunity for long-term investors. The current CEO of GE, John L. Flannery, has been trying to turn the company around. If investors can tolerate short-term pain, and if Flannery can eventually turn the company back around, it might pay off.
- https://www.bloomberg.com/news/articles/2018-06-19/ge-gets-kicked-out-of-dow-the-last-19th-century-member-removed
- http://money.cnn.com/2017/11/20/investing/general-electric-immelt-what-went-wrong/index.html
- https://www.cnbc.com/2018/06/20/ge-may-now-be-a-buy-after-getting-kicked-out-of-the-dow-heres-why.html
- https://www.usatoday.com/story/money/markets/2018/06/22/ge-walgreens-what-should-you-buy/721404002/