Apple Just Made Its Case to Join the Dow. Will Intel or Cisco Get the Boot?

The Dow Jones Industrials (DJINDICES: ^DJI  ) had a fairly lackluster Wednesday, falling almost 13 points and giving back just a small portion of the gains the average has picked up over the past week and a half. Weak economic data and some earnings-related concerns held back the Dow from further gains. But the most interesting news for Dow investors came after the bell, when Apple (NASDAQ: AAPL  ) announced its latest earnings. Most investors focused on the after-hours gains for the iPhone maker, as it announced a higher dividend and a huge share buyback. But one much-overlooked element -- its planned stock split -- is the most important thing for those who follow the Dow Jones Industrials -- because at long last, Apple will no longer have any impediment to becoming a member of the Dow.


Source: Apple.

Top of the heap
Many investors have bemoaned the fact that Apple wasn't invited to join the Dow a lot sooner. The tech giant has the highest market cap in the stock market, and its size dwarfs some of the Dow's current and past tech components. Yet with share prices that went as high as $700 two years ago, it was impractical for Apple to become part of the price-weighted Dow Jones Industrials.

Now, though, Apple has announced a 7-for-1 stock split to take effect on June 9, with shareholders of record as of June 2 receiving six additional shares for each one they own. The move is somewhat surprising, as both former CEO Steve Jobs and current CEO Tim Cook had refused to split the stock before now even as the stock's price soared.

Source: Apple.

For the Dow, the net impact of the Apple split will be to bring its shares into a comfortable range between $75 and $85 based on after-hours trading. That price will put Apple squarely in the middle of the pack among Dow components, giving it a reasonable amount of weight but not too much -- and far less than some of its tech peers.

Making room?
So if Apple does get invited to the Dow, which stock will have to leave? Given the number of tech stocks already in the Dow, it seems likely that it'll have to be a tech stock that goes -- and the two obvious candidates are Intel (NASDAQ: INTC  ) and Cisco Systems (NASDAQ: CSCO  ) . Both stocks have relatively low share prices, making their impact on the Dow negligible. The last time the Dow chose to replace stocks, share price appeared to play a role, with low-priced stocks leaving to make room for higher-priced alternatives.

Intel was on top of the tech world when it joined the Dow in the late 1990s, but lately, it has lost most of its momentum. Only now has Intel made strides to regain its strength by coming up with a viable mobile strategy, and even so, Intel's heavy reliance on PC-driven revenue gives the Dow similar exposure to what it gets from including the maker of PC software like Windows and Office as a Dow component. Unless Intel dramatically changes its business model, one could argue that keeping Intel in the Dow duplicates what the average already gets elsewhere.

Cisco has seen a similar fall from grace, and its business model has already changed so dramatically that it no longer stands out as a distinctive Dow component. When Cisco's networking focus was paramount, the company was one-of-a-kind in the Dow. More recently, though, Cisco has tried to jump into popular areas like cloud computing and IT services -- areas that other Dow tech stocks are fighting in as well.

Obviously, the folks who manage the Dow Jones Industrials might not accept Apple's implicit application for membership. But for those who've long made the case for Apple to join the Dow, today's news could a groundbreaking event.

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Read/Post Comments (6) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 23, 2014, at 9:08 PM, dbtuner wrote:

    I say they throw out Hewlett Packard

  • Report this Comment On April 23, 2014, at 9:17 PM, SuntanIronMan wrote:

    @dbtuner

    They already did.

    HP, Alcoa, and Bank of America were tossed out last year to make room for Goldman, Visa, and Nike.

  • Report this Comment On April 23, 2014, at 9:36 PM, dbtuner wrote:

    haha!! good catch

    OK then, I vote for Cisco

  • Report this Comment On April 23, 2014, at 11:43 PM, Morgana wrote:

    Dow? No Dow? Do I care today?

    I am right now a very happy camper . . . oops . . . .

    HAPPY FOOL!!!!!!

  • Report this Comment On April 24, 2014, at 10:55 AM, rightislight wrote:

    Isn't the DOW supposed to be a basket that reflects the underlying market and business strengths and weaknesses? If so siding with popular stocks makes little sense. You want stocks that are foundational for the economy. A device is fleeting. We've seen that already. Underlying the device is semi-conductors (Intel) and an infrastructure (Cisco). These are truly horizontal, cross industry companies. Replacing them with Apple makes no sense.

  • Report this Comment On April 24, 2014, at 12:20 PM, SSchlesinger wrote:

    Apple is using it's cash to buyback stock and bolster their balance sheet. Their newest ARM based innovation, the iPad lost 16% in sales year over year. The market is very clear for tablets, it's now a commodity business. The same is true for phones. when people feel like spending money out of pocket for a premium phone the iPhone is the one they select. But increasingly it's Android that people are choosing.

    The powerhouse Steve Jobs era is over for Apple. I think this is a terrible stock to add to the DOW. I know you have no faith in Intel. It's at the end of a five year cycle to set itself up to enter the tablet and smartphone markets to the point that it cuts off ARM's momentum. I see a much better growth story in real earning for Intel than I see for Apple over a five year period.

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