DRUG OF CHOICE
Walgreens & Dow
On paper, Walgreens Boots Alliance is an underwhelming choice for inclusion in the world’s most famous stock index.
The company’s shares are languishing, its industry keeps coming under threat, and it’s half the size of the company it’s replacing, General Electric.
But for a clue as to why owners of the Dow Jones industrial average picked it, look at the companies they didn’t.
In particular Amazon, the world’s biggest retailer, whose $1,760 stock effectively bars it from a priceweighted gauge. Tuesday’s reshuffling shows the trouble Jeff Bezos’ behemoth creates for the Dow. It can’t go in itself, and its success disrupting retail has left no obvious alternative beyond a drugstore chain whose shares are on a three-year skid.
“Retail hasn’t been working,” Kim Forrest, senior portfolio manager at Fort Pitt Capital Group in Pittsburgh, said. “That whole retail aspect, who are they going to slide in there? Macy’s, JCPenney? All these stalwarts of American retail have just gotten killed.”
Given that, Walgreens is the closest thing the Dow had to a safe bet, Forrest said. Though it has tried, “It’s very hard to ‘Amazon’ pharmaceuticals.”
Luke Shane, a spokesman for S&P Dow Jones Indices, declined to comment on other candidates, saying the Dow methodology states all index committee conversations are confidential. A Walgreens representative said the company did not have any comment on the reason for its selection.
Another candidate that didn’t make the cut is Facebook, currently the world’s fifth-biggest company. At $202, its stock isn’t exactly bargain basement, but would fit within the Dow’s existing range. One mark against it is the industry: Technology companies would make up nearly one-quarter of the index.
Another might be zeitgeist, with Chief Executive Officer Mark Zuckerberg being dragged in front of lawmakers to explain the company’s privacy policy.
To be sure, the Dow’s index committee, headed by David Blitzer, can make a case for promoting Walgreens.
It has a diverse revenue stream. It’s far from a sales pipsqueak, with annual revenue north of $120 billion. And the biggest drugstore chain by US retail pharmacy sales has expanded profits in all but one year over the past decade.