Intel Was Just Dropped From the Dow. History Says This Is What Will Happens Next.

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Intel (NASDAQ: INTC) stock popped Friday after it reported ugly third-quarter results but its outlook for the fourth quarter was better than expected. However, the celebration was short-lived, as S&P Global announced after hours that rival Nvidia would replace Intel in the Dow Jones Industrial Average (DJINDICES: ^DJI).

S&P Global said that the move would give a more representative exposure to the semiconductor industry as the Dow Jones is a price-weighted index and Nvidia's share price is much higher than Intel's. In fact, Intel had the lowest share price of any of the 30 Dow stocks, meaning it had the least influence on the index. The move will go into effect on Friday, Nov. 8, when the index will also swap out chemical company Dow for Sherwin-Williams for similar reasons.

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Intel has been a Dow component since 1999, so the move will bring its 25-year run to an end.

Shares of the chip stock sold off on the news, falling 1.8% in the after-hours session. The demotion from the Dow doesn't have the same impact that removal from the S&P 500 would, as only a few ETFs track the Dow. However, it's another inauspicious sign for Intel as it attempts what's arguably the biggest turnaround effort in its history.

The DJIA is updated on an as-needed basis, and its managers aim to have a balanced selection of stocks across all sectors, based on company reputation, a history of sustained growth, and interest to investors. The Dow doesn't switch components often as S&P Global aims for stability. However, as Intel gets set to be dropped, it's worth looking at how past components have fared after being removed from the Dow.

The track record of Dow outcasts

Prior to this announcement, the last time the Dow Jones Industrial Average reshuffled was when Amazon replaced Walgreens Boots Alliance in February. That move came as Walgreens was badly faltering, and the index sought to increase its exposure to the consumer retail sector.

WBA Chart
WBA Chart

Since then, Walgreens has continued to struggle. As you can see from the chart above, the stock has fallen 55% since then, while the S&P 500 is up 13%. Based on those results, it looks like the index manager made the right call by dropping Walgreens.

The last changes in the Dow before that came in 2020, when ExxonMobil, Pfizer, and RTX (formerly Raytheon) were removed from the index in favor of Salesforce, Amgen, and Honeywell. The chart below shows how they've performed since they were removed from the Dow.