“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.”
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.