Dow Jones Index entry another milestone for Apple

Apple is joining the Dow Jones Index this month, adding one more trophy to the roster of the company founded by the late Steve Jobs.

Not only is Apple the highest valued company in the world at $725.24 billion (Tuesday’s closing), its cash pile at $178 billion is probably the world’s largest corporate hoard. It recently reported first quarter profits of $18 billion, which is considered a record for a public company.

Unlike the 30-share Sensex, which represents the prominent stocks listed in the Bombay Stock Exchange, or the 50-share Nifty, which comprises the best 50 stocks in the National Stock Exchange, the 30-share Dow Jones Index (DJI) is bourse-neutral.

Currently, 27 of its components are NYSE (New York Stock Exchange) listed, while three are listed in the tech-dominated Nasdaq.

Sensex and Nifty indices are computed using free-float market capitalisation methodology, while DJI is a price-weighted index.

“In a market cap weighted index like Sensex, small price shifts of a larger company will have high influence. In contrast, in the DJI, irrespective of the size, price movement of each component stock will determine the index value. Had there been no stock split, Apple would have had a larger impact. That could be why the stock split was helpful for Apple’s inclusion,” said Alex K Mathews, head of research at Geojit BNP Paribas. Incidentally, Apple’s 7-for-1 stock split was announced last year.

Cisco, Intel, and Microsoft are the other three Nasdaq-listed companies in the DJI, which tries to represent all industries, save transportation and utilities. First published in 1896, the DJI — currently owned by McGraw-Hill subsidiary S&P Dow Jones Indices —probably features only one stock (General Electric) today, which was part of the original index.
Interestingly, Apple is replacing AT&T in the index and the two companies have a history of working together.

The iPhone, the gadget which forever changed the fortunes of Apple, first debuted in 2007 in an exclusive partnership with AT&T in its GSM version. Only four years later did the largest US telecom Verizon, and later Sprint, get to tie up with Apple for CDMA versions of the smartphone.

Apple, co-founded by Steve Jobs and Steve Wozniak, was on the decline after a string of missteps until Steve Jobs returned to the company as part of an acquisition in 1997. Starting with the iMac in 1998, the iPod in 2001, and the iPhone in 2007, he initiated a revival which has seen the company grow 100 times in terms of profitability during the past 15 years.

Fund managers who missed Apple’s turnaround initially, and later held back thinking the stock had peaked, can relax. Even the colossus Warren Buffett hasn’t taken an exposure in the company, though the Berkshire Hathaway chief generally stays away from technology companies saying he doesn’t understand them.