Starbucks is closing 150 stores, and General Electric has been removed from the Dow Jones Industrial Average. That’s a big day.
Perhaps Americans have enough coffee, perhaps Starbucks has achieved their growth target, or maybe it’s just a sign of the times? After all, old brick-and-mortar retail is suffering, and while you cannot buy a cup of coffee on the Internet (yet) there is plenty of competition over the coffee space, and consumers might be tiring of paying eight dollars for a product that they can get at home with a Keurig or someplace else cheaper.
Perhaps they are coming to their senses? Or, perhaps I give consumers too much credit? Either way, the joke about a Starbucks across the street from a Starbucks is too real to ignore, and it might be time for them to step back and try to re-invent the company in some way. It’s coffee, after all, and how much renovation can they make?
As for investing in SBUX - if it gets to $48 start sniffing around. Now, at $56 it’s an expensive stock, and trading at too high a multiple to be attractive.
The stodgy old Dow Jones Industrial Average is making a long overdue change. It’s a price-weighted average, so a $13 stock like GE has no place in an average of companies that are either higher priced or actual growth stories. Why they picked Wallgreen’s Boots Alliance is beyond me, but that may be a story for another day.
In the investing world, the Dow is antiquated, and real-life traders and analysts don’t really pay attention to it. It’s more of a newsy-news story when it reaches some new plateau like 25,000 or whatever number is next on the zero list. You should be paying attention to the S&P 500 and the NASDAQ 2000 for a real read on what “the market” is doing. The Dow is price-weighted, so a move in a $300 stock like Boeing matters more than a move in a $66 stock like Walgreen’s.
So, it’s not really a big deal, it’s a cosmetic change to something that only matters to the people keeping track of numbers. The problems at GE won’t be hurt or solved by this. It’s a giant battleship that will take years to turn - if it can be turned - and whether or not it is in an arbitrary average of stocks is neither here nor there.
Don’t buy or sell GE or WBA based on this. WBA is slightly undervalued, and if you believe that people will still be doing major business at drug stores in ten years, have at it. As for GE, if you have a time horizon and don’t mind watching the stock go to perhaps $9 or $10, start dripping money in. You’ll have to trust that management can divest itself of the bad aspects of the business and make the best of the good parts. After all, that’s what good management does, right?
