As the company with the largest market cap at $548 billion, Apple Inc. (NASDAQ:AAPL) is the most valuable company. It is the market leader in many other areas but one distinction it does not have is being included as one of 30 stocks in the Dow Jones Industrial Average.
After its recent stellar earnings report, isn't it time to revisit the addition of Apple in the Dow?
Barron's makes the case in this week's issue. The Dow hasn't been updated since 2009 and as the blue-chip index, it represents the best of the best with its 30 components combined as a picture of corporate America.
One of the last technology companies to enter the DJIA in June 2009, was Cisco Systems, Inc. (NASDAQ:CSCO). It replaced GM, who was cut by Dow Jones because of its bankruptcy. Cisco joined Microsoft Corporation (NASDAQ:MSFT), International Business Machines Corp. (NYSE:IBM), Intel Corp. (NASDAQ: INTC) and Hewlett-Packard Co. (NYSE:HPQ) in the Dow, increasing the technology weighting to approximately 17 percent.
At the time Dow Jones made the case for Cisco's addition as a company that is the “21st Century version of automobiles…having the same kind of effect on American culture as automobiles did in the 20th Century.”
After reading that statement, isn't there also a case for Apple's inclusion? Here's a few reasons.
- The company’s profit last quarter was $11.6 billion.
- In March, it finally threw in the towel for a dividend; it already ranks as the third-largest payout, according to The Wall Street Journal, coming in behind the leader Exxon Mobil Corporation
- Apple sits on a huge stash of cash.
- When Apple introduces a product, consumers listen and immediately purchase it.
All sound reasons to add Apple to Dow, don't you think?
But Barron's has an interesting point with Apple entering the Dow. It suggests by that by adding the company, it could cause a deviation on the " Theory of Relativity" and possibly represent 26 percent of the index’s weighting. With its stock price sitting around $600, its swings could make the Dow look volatile. To avoid this, the powers to be would have to change the calculation to stop possible misrepresentations.
There may also be a second concern with adding Apple to the Dow. Because it is so successful, it only represents itself as noted by Steve Russolillo of WSJ, "As strange as it may sound, the currently constituted Dow — which last summer suffered four straight 400-point moves for the first time ever — may be a better representation of the actual economy."
And just to stir the pot some more, why not add Google Inc (NASDAQ:GOOG) too?