Walgreens earns an unwanted title as it's booted from the Dow for Amazon. How it happened
Well, that didn't last long. Walgreens has the dubious distinction of being one of the stocks that has had the shortest duration in the Dow Jones Industrial Average. The announcement Tuesday that Amazon would replace Walgreens Boots Alliance in the 30-stock index on Monday following Walmart's decision to split its stock 3-for-1 was not entirely unexpected. At $22, Walgreens has the lowest stock price in the index, which traditionally would make it a target for replacement. And Amazon had been speculated to be an add for several years, following its decision in 2022 to split its stock 20-for-1 . Unclear criteria In case you're wondering, both the Dow Jones and S & P indexes have a committee that meets regularly to decide on any changes. What criteria do they use to add or delete a stock? It's pretty fuzzy. The Dow Jones Average Methodology paper says that, "While stock selection is not governed by quantitative rules, a stock typically is added only if the company has an excellent reputation, demonstrates sustained growth and is of interest to a large number of investors." That's pretty fuzzy. Even less clear: "Changes to the indices are made on an as-needed basis," the methodology paper says. "There is no annual or semi-annual reconstitution." The criteria gets a big firmer here: "Rather, changes in response to corporate actions and market developments can be made at any time." There seems to be two issues that were sufficient "changes in corporate actions" that allowed the index committee to take action. First was price. Since the Dow indices are distinguished from the S & P indices because the Dow is price weighted, the price criteria gets a bit more specific. "Since the indexes are price weighted, the Index Committee evaluates stock price when considering a company for inclusion. The Index Committee monitors whether the highest-priced stock in the index has a price more than 10 times that of the lowest," it says. That's interesting. Right now, the highest priced stock, UnitedHealth Group , is more than 23 times the value of the lowest priced stock, Walgreens. So it certainly seems like it's time to make a change. And the decision by Walmart to split its stock 3-for-1 would certainly make the index committee more comfortable adding Amazon, since the stock split would mean Walmart would have less weighting in the Dow and it would give the committee room to increase retail exposure. Sector representation is also a factor: "Maintaining adequate sector representation within the index is also a consideration in the selection process for the Dow Jones Industrial Average," the methodology paper states. S & P made a nod to this requirement in its press release, saying that adding Amazon would reflect "the evolving nature of the American economy," and that "this change will increase consumer retail exposure as well as other business areas in the DJIA." Walgreens' short tenure This is another in a string of setbacks for Walgreens. The stock was in the $60s when it was added to the Dow in 2018 . Removal after only six years would make Walgreens one of the companies with the shortest stay in the Dow Industrials. Though it is not stated explicitly, removing stocks after a short period in the indexes goes against the grain of the indexes. As they make clear, changes are made on an as-needed basis, and the Dow Industrials, at least, has always tried to keep change at the minimal. There has only been a little over 60 changes since 1896. WBA 5Y mountain Walgreens stock over the past five years To give you an idea of the aversion to change, there were no changes from March 1939 until July 1956. Index watchers have told me for years that to some degree you need a reason to be removed, compared to significantly larger justification to be put in. Having your stock trade for 23 times less than the highest priced stock in the index is certainly some justification. By the way, in case you're wondering, the record for shortest time in the Dow Industrials appears to be U.S. Rubber. That stock was in the Dow for six months in 1896, then was added back two years later – replacing General Electric. Talk about a convuluted history. In the early days, General Electric was an original in 1896. U.S Rubber replaced GE in 1898. GE was added back in 1899. It was taken out again in 1901. It was added back in 1907. And taken out again in 2018. Guess what replaced GE? Walgreens. Is Uber a transportation stock? Finally, one wonders how Uber executives feel about the decision to put them into the Dow Jones Transportation Index. Uber is replacing JetBlue , which like Walgreens in the Industrials, is now the cheapest stock in the Transports, at $7.01. CNBC's Robert Hum noted that the company specifically identifies as a tech company in its mission statement: "We are a tech company that connects the physical and digital worlds to help make movement happen at the tap of a button." S & P, of course, did not consult Uber prior to adding them. Still, the only other "ground" company in the Transports is Avis, which no one would argue is a "tech" company.