The Dow Jones Industrial Average is famous for its resistance to change. The only change in the last four years was forced by former member Kraft Foods’ splitting in half, with each half lacking the scale to keep a seat on the Dow. The member list has changed only 52 times in 128 years, or 25 times since it first became a 30-ticker list in 1928. Breaking into this exclusive club takes extraordinary qualities.
That’s something Apple Inc. (NASDAQ:AAPL) has delivered in spades for the last decade or so. The pride of Cupertino is still the world’s largest company by market cap, edging out oil giant Exxon Mobil Corporation (NYSE:XOM) despite a horrific 29% plunge over the last 12 months. In a long-term perspective, the Dow and Exxon Mobil Corporation (NYSE:XOM) look like they’re flatlining next to Apple Inc. (NASDAQ:AAPL)’s fantastic growth.
Apple Inc. (NASDAQ:AAPL) also rules the roost in terms of trailing net income, where its $37.7 billion performance beats runner-up Exxon by nearly $2 billion. Its $43 billion in trailing free cash flows places Apple Inc. (NASDAQ:AAPL) third in the world, losing out only to a pair of multinational banking titans. On this list, Exxon misses the top 10, with only $13.7 billion in free cash flows to its name.
That’s an elite performance record, no matter how you slice it. And yet Apple Inc. (NASDAQ:AAPL) has not been invited to the Dow. What would it take to get Cupertino into the market’s oldest index?
The answer comes in two parts. For one, the Dow is a price-weighted index, meaning that stocks with high share prices automatically account for a larger portion of the Dow’s value than lower-priced shares. Today, International Business Machines Corp. (NYSE:IBM) has the honor of being the heaviest-weighted Dow stock thanks to a $183 share price. That’s 50% more than the runner-up and more than 20 times the weight of Alcoa. If the aluminum producer doubled in price overnight, it would add about 60 points to the Dow. International Business Machines Corp. (NYSE:IBM) would move the index 60 points with just a 4% price change.
And that’s why Apple Inc. (NASDAQ:AAPL) isn’t particularly welcome, with share prices in the $500 neighborhood. That’s more than twice IBM’s price, and a fairly ordinary 1.6% price swing would hit the Dow as hard as Alcoa’s doubling (or plummeting to zero).