General Electric, a member of the Dow longer than any other company, could get kicked out because of its sinking stock price.
The workings of the committee that determines which stocks stay in and which ones drop out of the blue chip index are a bit mysterious. For example, there’s no clear price threshold that automatically gets a stock thrown out.
GE is $18 right now. But AT&T was $33 when it was removed in 2015, and Alcoa was $8 and Bank of America was $14 when both were removed in September 2013. Hewlett Packard was $22 when it was removed, and Kraft was $39. Citigroup had dropped to $3 when it was removed in June 2009, at the same time GM was dropped at 27 cents a share.
The price relationship between GE and other stocks may be important because the Dow is price-weighted. David Blitzer, the chairman of the index committee at S&P Dow Jones Indices, has said he prefers the ratio of highest- to lowest-price stocks to be less than 10-to-1.
By that standard, GE is definitely a candidate to get thrown out. The highest-priced stock in the index is Boeing, which at $261 is nearly 15 times the price of GE.
Another way to look at this is not by the price of the stock but by the state of the company. The committee dropped Alcoa because raw material companies weren’t as important as they used to be.
But the best parallel to today’s General Electric may be Hewlett Packard. The computer company was dropped from the Dow in 2013 because it was a former tech giant that had fallen on hard times. Back then, Hewlett’s board of directors was struggling, and the company seemed unsure of what it should be doing next.