Apple in the Dow index? Not at this stock price
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Apple Inc. has become the second-most-valuable U.S. company in terms of stock market value, a spectacular accomplishment for the Silicon Valley icon.
But it still hasn’t been invited to join one of corporate America’s most exclusive clubs: the Dow Jones industrial average.
Microsoft Corp., Cisco Systems Inc., Hewlett-Packard Co., Intel Corp. and IBM Corp. all are in the 30-stock Dow. Yet Apple now is bigger in market cap than any of them, at nearly $290 billion. And it’s second only to Exxon Mobil Corp.’s $329-billion valuation.
Dow Jones & Co. has no hard-and-fast rules about which stocks should be in the venerable Dow, but the goal has always been to have a representative sampling of America’s leading companies. The basic guidelines are that a company should have ‘an excellent reputation, demonstrate sustained growth, is of interest to a large number of investors and accurately represents the sector(s) covered by the average,’ Dow Jones says.
When I asked John Prestbo, the head of Dow Jones indexes, specifically about Apple, he said: ‘Apple clearly is a blue-chip stock and eminently qualified for inclusion in the Dow.’
The major obstacle, ironically, is Apple’s high-flying stock price, which closed at a record $314.74 on Friday.
The Dow is a price-weighted index. That means the highest-priced stocks in the index have the greatest effect on the Dow’s moves, up or down. The lowest-priced stocks have relatively little effect.
IBM currently is the highest-priced stock in the Dow, at about $141 a share. It accounts for about 9.6% of the entire index. By contrast, the lowest-priced Dow stock -- Bank of America Corp., at about $12 a share -- accounts for a mere 0.8% of the index.
‘Adding [Apple] at $300 would distort the index,’ Prestbo said. ‘For all 30 stocks to work together to tell the market’s story, their prices must be within what I’d call a modest range.’
That means Apple would have to split its stock price to have a shot at getting into the Dow index. A 5-for-1 split, for example, would lower the price to about $63.
Of course, it’s highly unlikely Apple would split its stock just to get into the Dow (which wouldn’t be guaranteed, anyway). But it’s common for companies with high-priced shares to split them. And Apple has done so in the past: It split its shares 2 for 1 in 1987, 2000 and 2005.
An Apple spokeswoman declined to comment about the possibility of a split, saying the company couldn’t discuss stock issues ahead of its quarterly earnings report Monday.
Dow Jones often makes Dow index stock substitutions in batches. It may be facing another big decision soon: whether to put General Motors Co. back into the Dow after the company goes public. GM was booted in June 2009 as it careened into bankruptcy. That left the index without a major auto company as a member.
June 2009 also is when Cisco Systems was added to the index. Dow Jones passed over Apple at that point. Apple’s case for inclusion arguably is only greater now.
-- Tom Petruno