If history is any guide, Walgreens Boots Alliance may fare better after being eliminated from the Dow Jones Industrial Average.
Amazon replaced Walgreens on Monday, marking the first change in the index since 2020. That comes less than six years after the U.S. and British drugstore chain first joined the Dow Jones index, replacing General Electric.
But a coveted spot among 30 Dow stocks may not be all there is to it for Amazon, which has surged more than 87% in the past year, joining other big tech stocks in driving the market higher.
In fact, data shows that it's often better for investors to bet on a stock that's about to exit the Dow than to buy one that's on its way into the 127-year-old average.
This could bode well for Walgreens stock, which has been in decline for years and has lost more than half its value since joining the Dow. The stock is down 28% in 2022, another 30% last year, and more than 18% in the first two months of 2024.
cnbc pro used its stock screener tool to track the one-year performance of the last 10 stocks that entered the Dow versus the last 10 stocks that left the blue-chip index. Search results show that stocks removed jumped an average of 23.3% over the following year, far outpacing the average 2.4% gain for those that made it into the Dow.
ned data from davis research shows a similar pattern. Since 1972, stocks removed from the Dow have gained an average of 17.5% in the year following their departure, while blue-chip new additions have gained 10%, ndr said.
History
Alcoa has been the best-performing stock among the past 10 companies to exit the Dow. In 2013, the aluminum stock was overtaken by Nike, Visa and Goldman Sachs, along with HP and Bank of America.
Over the next year, Alcoa surged 91%, Hewlett-Packard gained about 72%, and Bank of America gained 18%. Of the three new companies added that year, Nike's stock price rose the most, about 16%.
Other companies that exited the Dow also posted big returns. RTX, Exxon Mobil, and Pfizer were also ejected from the Dow in 2020 and surged approximately 39%, 37%, and 29%, respectively, in the following year. Two other companies, Salesforce and Amgen, fell about 3% and 11% respectively.
Even Apple wasn't immune, falling more than 17% in the year since joining the Dow.
This trend is not all. For example, Honeywell International surged more than 40% a year after joining the Dow, while UnitedHealth gained nearly 28%.
General Electric, the last of the original 12 Dow stocks, plunged about 58% in 2018, a year after leaving the average. AT&T and Dupont de Nemours have fallen more than 14% and 21%, respectively, in the year since being kicked out of the Dow.
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