Can Kodak Remain a Dow Component?

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

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.

Not Just a Trading Opportunity

Now, it’s true that the performance of a particular stock isn’t generally a deterrent to its inclusion in the Dow 30. The average is regarded as an important economic gauge, not just a trading opportunity. Changes in favor of momentum-driven stocks aren’t made (though one could argue that the index is notably missing companies that don’t make money, certainly a significant part of the U.S. economy right now.)

However, unlike International Paper, which has struggled this year, and Philip Morris, a stock mostly in the hands of lawyers, Kodak has been dragging its feet since rocketing to a high of $89.75 in February 1997. A brief rally occurred in mid-1998 but didn’t last, and it’s been mostly the dregs for this stock since.

“Over time the performance of stocks has to matter when replacing them,” says Carlson. “If, over a five- to six-year period, the market is ignoring a stock, that says something about the significance of the business to the economy. They’ll listen to it.”

Tradition Counts for Something

He thinks the next time the Dow Jones people review their index (there’s no set schedule), Kodak is likely to stand down. Other than fellow poor performers such as IP and Big Mo, there don’t seem to be many other candidates.

“A long time ago in an economy far, far away Kodak was a hot damn stock, but it’s not doing very well right now,” says Richard Dickson, technical analyst at Scott & Stringfellow in Richmond, Va.

But it may not happen so quickly. Bollinger of says he’d be a bit more proactive were he running the index, by adding a few technology components. But as far as Kodak, his sentimental side recalls Fiddler on the Roof’s Tevye, shouting “Tradition!”

“They’re loath to make changes to delete a name that is as familiar to the average American in the way that Kodak is,” says Bollinger.

Now, if only the stock were familiar to the average stock investor.