Barron’s: Apple deserves to be in the Dow

“The Dow Jones Industrial Average is overdue for a makeover. The world’s most famous stock index hasn’t adjusted its component companies since 2009, during which time Apple (AAPL) has emerged as the world’s most valuable company, with a market value of $570 billion,” Andrew Bary reports for Barron’s. “Also conspicuous by its absence from this elite list is Google (GOOG), the online advertising-and-search behemoth. Both represent major shifts in the global business landscape in ways that current Dow components such as Hewlett-Packard (HPQ) and Alcoa (AA) do not.”

“Yet admitting Apple or Google — or any other high-priced stock — would be difficult, given the way the index is calculated. Rather than weighting component companies based on market value, as the Standard & Poor’s 500 and most other major indexes do, the Dow weights its 30 components based on the absolute price of their shares,” Bary reports. “With a price of around $605, Apple’s shares would overwhelm the index with a 26% weighting. That is double the influence of current Dow component International Business Machines (IBM), whose $207 stock price gives it a 12% weight in the index. Given its big daily swings, Apple alone could move the Dow regularly by 100 points or more. (The 9% jump in the stock after Apple reported blowout earnings last week, would have lifted the DJIA by nearly 300 points.)”

Bary reports, “As the largest company by market value and one of the biggest measured by profits, Apple deserves to be in the Dow… Apple probably would guarantee its admission to the Dow if it splits its shares by five-for-one or 10-for-one, but that doesn’t look likely any time soon. Apple hasn’t split its shares since 2005, and CEO Tim Cook said on a recent conference call that it doesn’t see any benefit from doing so now.”

Read more in the full article here.

Related article:
Apple Inc: Just way too expensive for the Dow – September 20, 2011


    1. To put this another way, I look at the fact that The overly venerated Dow as a “has been” like an old high school football star that is now fat and living in a run down trailer home looking back on its glory days when it still mattered. The fact that they didn’t put Apple in there back when they had the chance shows how irrelevant and out of touch this old crusty has been index is. Many investors still pay way too much attention to it, but think about how clueless analysts have been for so long about Apple.

      What we need is a new index that is relevant today, because the Dow has long lived past its time.

  1. It appears, AAPL hasn’t done too shabbily without DOW; why break away a good thing?

    Meanwhile, keep on selecting pretenders like Cisco or Google (tomorrow’s Cisco), soon enow, Dow will be as irrelevant as the exposed pretender’s 30. High time too, some might opine.

  2. “As the largest company by market value and one of the biggest measured by profits, Apple deserves to be in the Dow”

    Again this article is written assuming that the Dow deserves Apple. This index has been given far too much respect, the fact that they did not admit Apple into their index back when they dumped GM and put Cisco in there, says everything you need to know about this cobweb infested relic run by old, out-of-touch white men.

  3. Worth considering index funds would be required to purchase and maintain an equivalent AAPL position, which could bring more stability and perhaps a higher P/E. Not sure if that would be worth it though. Used to be Apple could have used the Dow to remind investors the company is not a boutique operation, however I think the company has overwhelmed that image in the last couple of years.

  4. In other words, the Dow is obsolete. The fact that they stubbornly don’t want to change anything when the world is changing around them is proof of that.

    The only real relevance of the Dow J is that they are featured on my iPhone. 😉

  5. Take your pick Google or Apple as part of the Dow would reflect the future of where tech is going to be in the future, than IBM or Cisco, or Microsoft. One of them should be in the Dow.

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