Should Apple Join the Dow? Should It Split Stock to Do It?

Apple (NASDAQ:AAPL) stock is moving around at a pretty good clip of late, mainly due to some whispers going around (and getting louder, by the way) that with Kraft (NASDAQ:KFT) about to leave the Dow Jones Industrial Average once it follows through with its plan to split up its company, there will be an opportunity for Apple to jump into the Dow. And why not? It is, after all, the largest company in the market (by a long shot) in terms of capitalization. Maybe the Dow hasn’t been as “accurate” when the markets’ largest company isn’t included.

Should this Concern Apple Inc. (AAPL) and Google Inc (GOOG)?

A lot of the talk surrounding Apple has been whether it should even be considered, and if so, would the company willingly split up its stock in order to fit in the complex Dow index formula? That seems to be an interesting question, and the idea of a stock split is partly what has generated some new growth in Apple stock (at least, that’s the belief instead of very early hype over the release of the iPhone 5 in October).

One article explores the impact Apple could have on the Dow index should it join the 30-member composite as a replacement for Kraft. As one can see in the chart at thee bottom of the page, if Apple joined the DJIA but did not split its stock, the Dow would weight Apple stock as more than one-fourth of the average, while Kraft wasn’t even 2.5 percent of the average. Most indications are that the Dow would not want one company to weight the average so heavily to where it overwhelms a large percentage of the other 29 companies in the index. If Apple did not split its stock, not only would be weighted twice as heavily as any other stock (IBM is weighted 11.4 percent currently), but as a prospective 26.7 percent weight on the index, Apple would be heavier than 17 of the other 29 companies.

And combined with IBM (NYSE:IBM) and Microsoft (NASDAQ:MSFT) – let’s exclude other Dow tech stocks like Intel (NASDAQ:INTC), Cisco Systems (NASDAQ:CSCO) and HP (NYSE:HPQ) for now – and the technology sector would make up more than 36 percent of the index – just in three companies!

So certainly it would make sense that if the Dow approached Apple as a possible replacement for Kraft, it’s very likely that Apple would have to split its stock, with the chart showing that a 3-to-1 or 4-to-1 split would probably need to happy in order to provide reasonable weight to the index. But even then, replacing Kraft (which was 2.3 percent of the index) with a split Apple stock that may be 10 to 13 percent would skew the average to the point that the index would probably set an all-time high very soon after Apple joins, if not the first day.

Plus, one should consider – already, there are seven technology-based companies in the Dow average – IBM, Microsoft, Intel, Cisco, HP, AT&T (NYSE:T) and Verizon (NYSE:VZ). While tech is so dominant in the economy, should Apple make it eight and thus have technology make up more than 25 percent of the Dow index? And with a company so large, would th Dow even consider skewing its index by replacing 2 percent of its index with 10 or 13 percent?

As traditional as the Dow seems to be, there is some doubt – at least, not without Apple drastically splitting its stock to where it was a reasonable replacement for Kraft – like, as the chart in the article shows, would probably mean a somewhere between a 10-to-1 to 20-to-1 split. Would Apple seriously consider that much of a split just to be on the same index as rival Microsoft, which didn’t have to split its stock to get there?

The rumors are swirling, but there is a lot of question whether Apple should even join the Dow – would the Dow even extend an invitation – and whether Apple should split its stock into bite-size pieces in order to do it. But would the Dow expect that, or make it a condition in order to join? Based on Apple’s track record, there is some doubt that Apple would want to join a club that wouldn’t have its whole stock as a member.

blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

4 BuzzWorthy Cannabis Stocks And Some Smoking Derivative Plays

The 10 Healthiest Fast Food Chains in America to Dine At

The 5 Most Expensive Cat Food Brands You Can Spoil Your Kitty With

The 6 Best eCommerce Platforms for Small Businesses

The 10 Worst Mistakes an Entrepreneur Can Make

The 5 Most OP Characters in League of Legends to Carry Games and Crush Foes With

The 5 Best Foods to Eat Before Running that Will Help You Pound the Pavement

10 Glaring Plot Holes in The Walking Dead that a Zombie-Filled Bus Could Drive Through

The 5 Biggest Celebrity Stoners Who Love Their Reefer

The 10 Most Overrated Movies Of All Time by Out-of-Touch Critics

Top 6 Least Expensive Cruise Destinations For 2015 that Will Take You to Paradise

10 States with Lowest Substance Abuse Rates in America

The 14 Most Watched TV Finales Ever

The 10 Best Selling Role Playing Games of All Time for PC

10 Most Influential Papers In Economics

Top 8 Biggest Charities in the US

10 Worst Celebrity Career Moves Ever

Top 10 Best Paid Tennis Stars in the World

10 Cities with High Demand for Nurses

6 of the Worst Greeting Card Messages Ever Crafted

How to Make Money in ArcheAge and Build Your Empire

10 Foods To Eat To Lower Cholesterol Levels

The 10 Most Hated Television Characters of All Time

The 30 Worst Halloween Costume Ideas Ever Brought to Horrible Life

10 Vocational Skills in Demand Today with Jobs Waiting to be Filled

10 Best Places to Visit in Central and South America

The 10 Greatest Empires in History Which Nearly Conquered the World

The 6 Cheapest Boarding Schools In America 2015

5 Clear Reasons LoL is Better than DotA, Continues to Rule MOBAs

The Only 9 Teams with a Chance to Win the Super Bowl

The 15 Most Common Phobias in America that Induce Fits of Panic

Top 6 Least Expensive Tourist Destinations in 2014

Jim Goetz, Peter Fenton, Jim Breyer: Top 6 Venture Investors for 2014

Top 15 Billionaires in 2014

5 Pitfalls To Avoid When Buying a Franchise

Top 20 Medical Schools in the US – 2014 Rankings

4 Business Strategies that Turned Jamie Oliver into the World’s Richest Chef

6 Qualities That Make You A Good Team Player

10 High Paying Seasonal Jobs in America this Holiday Season

The 10 Busiest Shipping Lanes in the World

5 Most Valuable Brands in China

The 10 States with Highest Substance Abuse Rates Crippling Their Populace

The Top 10 Things to Do Before You Die That Will Echo for Eternity

The 10 Best Selling Items on Etsy

Top 10 Things to Do in Tokyo, the Greatest City in the World

10 Mistakes on Social Media that Can Harm You and Will Probably Get You Canned

The 10 Best Cities to Find Jobs in 2014

The 10 Most Controversial Songs Of All Time to Hit (and get Banned from) the Airwaves

The 20 Biggest IPOs in US History

The 10 Best Places to Visit in Mexico that Are Beautiful and Safe

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!