Can Kodak Remain a Dow Component?

Sept. 27 -- Tuesday was not filled with Kodak moments.

Least of all for Eastman Kodak, which issued its fourth negative earnings warning in the last three years. The photography stalwart saw its stock drop to a five-year low, making it one of the Dow Jones industrial average’s worst performers since 1995. Since August 1995, the Dow has gained 134 percent, and it’s not being helped by Kodak, which makes one wonder: What the heckaroonie is this company doing in the 30-stock average, anyway?

“It has been historically a very important name in corporate America,” says Chuck Carlson, co-manager of the Strong Dow 30 Value Fund. “But in the last three years, (The Wall Street Journal editors) have been pretty aggressive at putting new stocks in. It’s on borrowed time in membership in the Dow here.”

A Growth Stock in its Day

Kodak is one of the Dow’s senior citizens, having joined the index in 1930. Looking back, it probably stands as one of the best decisions made by the editors of The Wall Street Journal, published by Dow Jones. As interest in photography blossomed in America, the stock was one of the pre-eminent growth stocks in its day, especially when considered against then-members Johns Manville (which lost 59 percent between 1930 and 1982) and International Nickel (down 52 percent from 1928 to 1987).

“They were the only people in the consumer photography business in the ’40s and ’50s,” said John Bollinger, president of EquityTrader.com.

But it may be time for the Dow folks to run the old lady down the ladder and let her join the choir invisible. Since August 1995, Kodak has managed a groan-inducing 2.2 percent gain, compared with the S&P 500’s 156 percent rise and a 305 percent gain out of Wal-Mart (Wal-Mart!). The only other Dow stock with worse performance in the last five years is International Paper, a strong performer until January of this year, when the stock was hit hard.