Apple Inc Sets the Stage to Enter the Dow Jones Next Month

Bullishness in tech giant Apple (NASDAQ: AAPL  ) appears to be back in vogue after its share price struggled during the last two years. In fact, after its recent pop during the last month or so, Apple has roughly doubled the performance of broad market indexes like the Nasdaq Composite and Dow Jones Industrial Average  (DJINDICES: ^DJI  )  during the past 12 months.

AAPL Chart

AAPL data by YCharts.

Apple has plenty of catalysts that should help further bolster its share price in the months ahead including launching at least one new product line, as well as highly anticipated refreshes of other hit products.

Apple is set to make another major move next week that some also believe could prove a boon for shareholders: Apple's coming stock split. As we head into this uncommon event, is Apple's stock split likely to be a return driver in its own right? Let's take a look.

Apple positions itself to enter the Dow Jones
Next Monday, June 2, is the record date for the split, meaning that investors on record as shareholders will be due to receive six new Apple shares for every one Apple share they own. Apple's new shares will be issued one week later on June 9, the ex-date. 

The 7-for-1 split will knock Apple's current share price of $628.47, as of this writing, to a new share price of $89.78 per post-split share. This will perfectly position Apple's stock for inclusion in the price-weighted Dow Jones Industrial Average.

For context, the Dow Jones Industrial Average is a price-weighted index, meaning that a stock's price determines the overall weight it carries within the entire index. The larger a stock's price, the more weight within the index it commands. That's why companies with high stock prices -- like Apple's current price of $628.47 -- are viewed as unattractive prospects for price-weighted averages. Even small swings in Apple's current stock price would have a disproportionately large influence on the Dow's performance at present. That won't be a problem come June 9.

How big a win is this for Apple investors?
That's the eternal question associated with inclusion in an index like the Dow. In terms of the prestige, most agree that the Dow is the blue blood of indexes.

According to David Guarino, spokesman for S&P Dow Jones Indices, "Companies that are in the Dow should be established U.S. companies that are leaders in their industries." Likewise, Dow Jones' website mentions that a company that fits well in the Dow "has an excellent reputation, demonstrates sustained growth and is of interest to a large number of investors," both of which certainly apply to Apple. So, while there's a certain ego boost that some argue comes along with owning a Dow component, you can't retire off prestige.

Whether or not Apple would see any significant tailwind from inclusion in the Dow Jones Industrial Average is also up for debate. Academic finance has long examined the so-called "index effect" that can come along with inclusion in an index like the Dow, although it appears to have mostly dismissed the long-term benefits.

Specifically pertaining to the Dow, it's also worth noting that the number of mutual and index funds that track the Dow are only a tiny fraction of the size of those that follow the S&P 500, which Apple has been a member of since 1982. According to S&P Dow Jones Indices, some $1.6 trillion dollars in mutual and index fund assets track the S&P versus just $30 billion in fund assets that track the Dow. However, on the flip side, one recent study performed by Tony Sacconaghi showed that companies that are given placement in the Dow outperform the broad market by roughly 3% in the 30 days after they gain entry in the venerable index.

A non-starter for Apple investors
Plenty of attention has been paid to the possible tailwinds gaining entry to the Dow could provide Apple investors after its split goes through. For the record, I'm going to plead the fifth on this one.

More to the point, I'd counsel anyone looking to invest in Apple to look beyond these kinds of short-term, one-off catalysts, and instead focus on the more substantive issues that will drive Apple's business and stock price in the years ahead.

Thankfully, for those looking at investing in Apple in terms of years rather than months, the future remains quite rosy for Apple in my estimation. Apple is set to release highly anticipated updates to its iPhone specifically, but also to its iPad, in the months ahead. Moreover, a litany of potential new products Apple reportedly has in its highly veiled product pipeline also should provide fresh growth for Apple and its investors.

While the "Apple meets Dow" storylines are certainly enamoring, investors would do well to focus on the bigger picture for owning the world's largest tech company, even as the noise surrounding this one-off storyline increases in the weeks to come.

Leaked: Apple's next smart device (warning, it may shock you)
Apple recent recruited a secret-development "dream team" to guarantee their newest smart device was kept hidden from the public for as long as possible. But the secret is out, and some early viewers are even claiming its everyday impact could trump the iPod, iPhone, and the iPad. In fact, ABI Research predicts 485 million of these type of devices will be sold per year. But one small company makes this gadget possible. And their stock price has nearly unlimited room to run for early in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here!


Read/Post Comments (1) | 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 June 02, 2014, at 12:23 PM, Hansen wrote:

    The S&P 500 Index also increased, by 0.18%, or 3.54 points, to close at 1,923.57, registering gains of 1.2% for the week. Despite the S&P 500 trading at its all-time high, the index is currently trading at a one-year forward price-to-earnings (P/E) multiple of 16.31x , lower than the forward P/E multiples of 16.69x and 26.9x seen during the last two record-highs – in October 2007 and March 2000, respectively. http://goo.gl/hk10yP

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2974554, ~/Articles/ArticleHandler.aspx, 10/31/2014 6:19:56 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement