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Assuming the Dow Jones Industrial Average represents the biggest, most influential companies in America, Apple Inc. (Nasdaq: AAPL) easily qualifies.
With its massive market cap, trend-setting products, and global brand recognition, it is easy to argue Apple belongs as much or more than any of the current tech companies in the index.
In fact, Apple has superseded all of them, particularly Hewlett-Packard Co. (NYSE: HPQ) and Microsoft Corp. (Nasdaq: MSFT).
Yet the Dow Jones has ignored Apple while letting far weaker companies like, Bank of America Corp. (NYSE: BAC)and Alcoa Inc. (NYSE: AA) remain.
So what gives?…
In a nutshell, Apple stock is too rich for the Dow Jones Industrial Average.
Because the Dow Jones is price-weighted, Apple’s current $565 share price would simply overwhelm the index.
If included, Apple stock would account for about 25% of the Dow Jones. That’s more than double the 11.5% of current leader International Business Machines Corp. (NYSE: IBM).
“It wouldn’t be the Dow Jones Industrial Average,” Nicholas Colas, chief market strategist at ConvergEx Group told the Associated Press. “It would be the Apple Plus Some Other Stuff Index.”
In this case, a price move of just 5% in Apple stock could push the DJIA up – or down – about 200 points.
Looking at it another way, had Apple been added to the Dow Jones in 2009 instead of Cisco Systems Inc. (Nasdaq: CSCO), the Dow would now be over 15,000.
That’s well above the Oct. 2007 record of 14,164 and 2,500 points higher than where it stands today.
With that kind of heft, it’s no wonder the Dow has shunned Apple.
How the Dow Jones Industrial Average Works
But it’s not just Apple. Other Dow candidates trade high in the triple digits as well.
After Hours: 18.05 +0.44 (2.50%)
The key is guidance which is usually given during the ccall.
16:05 CSCO Cisco Systems prelim $0.43 vs $0.39 Capital IQ Consensus Estimate; revs $11.26 bln vs $11.03 bln Capital IQ Consensus Estimate
source: briefing.com
17:12 CSCO Cisco Systems on Conference Call for Q2 expect revs in 3-5% y/y; op margins in the range of 23-25%; EPS $0.32-0.35; Thomson Reuters consensus $0.42 -Update-
17:11 CSCO Cisco Systems follow up: CSCO is now trading at 21.82, -11%, a…
