“For several years investors have been speculating and demanding that Apple (AAPL) become a member of the Dow,” Options Calling writes for Seeking Alpha. “Because of the way the Dow operates, Apple previously had issues that would not allow the company to be considered by the Dow Jones board. The reason is that the Dow is a price-weighted measure, which means the bigger the stock price, the larger the impact it has on the Dow.”
“Visa (V) is currently the only stock in the Dow with a price over $200/share,” Options Calling writes. “However, Apple’s split will occur June 2nd, and the 7-to-1 split, as of today’s value, would bring the shares price to $87 per share. This price would allow Apple, a company that had the largest market cap in 2012, to make a play for the Dow, becoming one of the 30 companies that make up the Dow Jones Industrial Average.”
“While some incremental gains could come to Apple through a Dow affiliation, evidence shows that the ETFs and mutual funds that have to track and invest in Dow Components is far less,” Options Calling writes. “For every $1 that is tied to Dow components, there is $50 that follows S&P 500. Thus proving that investors benefit more for having a company in the S&P than the Dow, from an ETF and mutual fund investment perspective.”
“So now that we realize there is a small, if not incremental, financial advantage for Apple being added to the Dow, the question turns to whether the keepers of the Dow Jones Industrial average need Apple more than Apple needs them,” Options Calling writes. “It’s important to note that the function of the Dow is be an excellent indicator of the U.S. economy and adding Apple, which earned $38 billion over the past 12 months would increase the Dow’s ability to gauge the U.S. economy in a much more efficient way.”
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