Apple to replace Kraft in Dow? Makes sense

“Dow component Apple (AAPL) has a nice ring to it, doesn’t it?” Robert Holmes writes for TheStreet.

“Kraft’s decision to split in two opens the door for a rare shakeup of the benchmark Dow Jones Industrial Average, and investors are already offering up replacements that range from the predictable, like Apple, to the unique, such as Nike,” Holmes writes. “Every company in the Dow must have a broad reach in the global economy.”

“Kraft’s banishment from the Dow isn’t a foregone conclusion, but even investors in Kraft understand the reality that a smaller company won’t remain part of the index,” Holmes writes. “‘I see the writing on the wall,’ says Dan Neiman, manager of the Neiman Large Cap Value Fund, which has a stake in Kraft. ‘They’ll replace Kraft with a larger company. They only change it once every few years, but the possibility is there.’ The Dow has swapped components only five times since 2005, with the most recent replacements just over two years ago.. that doesn’t bode well for anyone expecting dramatic, sweeping changes the next time the editors at The Wall Street Journal plug and unplug companies to the Dow.”

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Holmes writes, “Whenever the subject of a Dow remake comes up, investors instantly clamor for the addition of Apple to the blue chip index. Apple is second in market value only to Exxon Mobil at $357 billion. As professional investors note, Apple deserves a spot in the Dow because of its dominance in consumer technology. ‘Everyone knows who they are. They’re one of the best consumer-product companies, if not the best,’ says Robert Pavlik, chief investment officer with Banyan Partners. ‘It just makes sense.'”

Read more in the full article here.
 

23 Comments

  1. It will probably never happen. There was an article out a few weeks ago talking about Apple and the Dow. The stocks on the Dow are weighted by stock price. Apple being about $400 per share would give it a roughly 30% weighting, too much for one company to be allowed to occupy; such a weighting would too drastically affect the Dow for it to be an accurate cross section of American business.

    1. I’m not a stock market guru, but I’ve heard for many years that the Dow hasn’t been reflective of American business for a long time, if ever. I’m not sure why it commands so much attention. Must be good marketing.

    2. Clearly Apple needs to do a 10-1 stock split!

      I really do understand why companies like Apple choose not to do stock splits. It creates headaches and it doesn’t create any real value. But, it does allow for some increased efficiencies in trading, and doing them very rarely would seem to balance out both side. Even Berkshire Hathaway is now doing them with the B shares.

      Ten years ago, not splitting seemed wise because who knows if Apple might lose %40 of its value– they don’t want to trade at $6 a share.

      But now that Apple has a huge pile of cash and dominant positions, a stock split makes sense.

      Hell, I’d settle for 5-1!

  2. Dow, maybe one good reason why AAPL don’t need to offer any substantial splits anytime soon. Apple doesn’t need Dow, AAPL might though; the question is, has Dow earned anything to deserve AAPL? I think I read somewhere last year that many a stocks went stagnant after joining Dow. Let them keep/push MS and Cisco and see how that’s working for them.

  3. Unless they change the way the Dow is calculated, it’ll never happen. They currently base it upon nominal share value, so Apple’s near $400 price would have a disproportionate affect upon the index. Of course, if Apple were to split 10:1, then it might happen.

    1. It’s a terrible reason for splitting the stock. I will say this again: stock splits do NOTHING. NOTHING. It does not make the stock “cheaper” and adds zero value. In fact, stock spits play into the hands of institutional traders and hedge funds, not schmucks like you and me. By splitting a stock, it becomes more liquid. And that means institutions and manipulate its price more easily.

      Do not believe the lies of analysts who say otherwise. The same frigtard analysts like Toni Sagnocci who clamor for Apple to issue dividends do so because again, large institutional traders will benefit by making billions in dividend income if Apple were to do that. And you are left holding the bag as Apple would have to reduce its volume of cash that could be used to build a protective moat for the company, invest in new products or make selective small acquisitions.

      And don’t get me started on analysts screaming “Apple should buy this or that company! Think of the synergies!!!” Asshats. They are saying that because in their greed, they can’t see anything but dollar signs from the brokerage commissions of a corporate merger.

      To Wall $treet, you are just an idiot to be manipulated. They hype things to push the masses of individual investors one way, and the institutional investors and hedge funds then short the stock you bought to make money. So ignore any talk of stock splits or dividends.

      Or, you can just grab your ankles. You decide.

  4. The Dow is a has been metric, one similar to batting average in baseball. Over time, much better measures of the economy (or success in baseball) have been crafted. The Dow is simple, it’s well known, and it has outlived its usefulness. The S&P 500 is a much better indicator of the overall health of the economy as it uses a weighted system versus the more straight up system the Dow uses. Including Apple would be a nice “badge” for Apple, but one that i’m quite certain they could care less about. Any real investor that thinks Apple’s inclusion on the Dow would have any material impact is one that you shouldn’t listen to.

  5. It’s not going to happen. Wall Street wants to keep Apple as devalued as possible. They’ll deem that Nike is more important a company than Apple. I’m fairly certain that Apple will never get a fair break as a company from Wall Street. They’re going to do everything possible to keep Apple’s share price relative to revenue as low as possible.

  6. Anyone see the target price upgrade Apple got today from Needham? A healthy $90 bump from $450 to $540. You see the company that’s leading the DJIA/NASDAQ charge down? Apple. Not Amazon or Google. Good old cash rich, high target price Apple. I guess it’s just par for the Wall Street course.

  7. In the posting, you said that Wall Street wants to “keep Apple as devalued as possible”, only to follow that with the target price upgrade on AAPL from Needham, being par for the Wall Street course. I am struggling to reconcile these two, as they seem to convey the exact opposite from each other.

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