Back in the lapsarian fog of June 2009, the keepers of the Dow Jones Industrial Average finally got around to tapping Cisco (CSCO), networking stalwart, to replace the bankrupt General Motors (GM). Cisco, remarked a managing Dow Joneser, was added because its products are “vital to an economy and culture still adapting to the Information Age—just as automobiles were essential to America in the 20th century.” Prescient catch: In the nearly two decades between its debut and Dow induction, a period that saw a router in every American garage, Cisco’s stock had already returned north of 22,000 percent.
So how did that 2009 decision turn out for the Dow? Depending on how you analyze it, either unfortunate or atrocious. Since its induction into the blue-chip average, Cisco has inched up 1.3 percent, substantially underperforming the Dow’s 48 percent rise.
Had the Secret Order of the Dow instead tapped Apple (AAPL), a tech player also “vital to an economy and culture still adapting to the Information Age” (“Information Age” = really? Why not just call it the World Wide Web?), the index would have enjoyed the stock’s 294 percent ascent over three years. In turn, we would now be rejoicing over the Dow at an all-time high of 15,290, according to Bespoke Investment Group. Instead, the Dow remains just below 13,000. Ergo: America’s dignity, still smarting from the economic collapse, was deprived of nearly 2,300 points of stock market pride.
Where’s the outrage? Right here, it turns out. See this trenchant analysis I penned last summer. Apple has since surged 70 percent. (Send Pulitzer/Loeb/Grammy invites, plus a pair of first-class tickets and some swag, to my agent.)
Meanwhile, Apple has never been so influential. It is now the market’s largest capitalization, weighing in at $512 billion, with traders and doormen the Manhattan-over increasingly whispering about its trillion-dollar inevitability. Cupertino’s products are beyond ubiquitous and fetch a product lust as strong as pure cocaine in 1981 Miami (or so I’m told). One stat that blows my mind: According to Apple analyst Brian Marshall, the vinyl roll-up iPad cover that Apple so easily sells for $39 costs it something like $6 or $7 to manufacture. Apple shipped more iPads last quarter than Hewlett Packard (HPQ), the top computer seller, shipped PCs. These guys could sell branded shards of glass with 85 percent gross margins.
Regardless, venerable, garage-hatched tech giant HP, and not Apple, is a Dow component.
Meanwhile, Apple sports the biggest footprint (4.11 percent) in the capitalization-weighted Standard & Poor’s 500 index. In fact, according to FactSet, Apple and the resurgent, resurrected AIG (AIG) accounted for almost all the earnings growth in the S&P 500 in the fourth quarter; exclude them from the index, and the S&P’s earnings growth rate would plummet from 6.1 percent to 1.2 percent.
To be sure, not much money actually tracks the Dow, which ranks members by the otherwise-arbitrary metric of share price. That’s why IBM (IBM) is the Dow’s No. 1 component at 12 percent, while Microsoft (MSFT) is at just under 2 percent—even though Big Blue has not been six times as significant as Redmond in decades. (Microsoft stock, for its part, is down 30 percent since it was added in 1999.) Elsewhere, Dow-component Chevron (CVX), by dint of its $110 share price, weighs more than Exxon Mobil (XOM) ($85), which is both the world’s biggest energy company and the second-largest U.S. enterprise by market value.
So maybe this embarrassing, ongoing snub of Cupertino is less about Apple and more about the creeping obsolescence of the world’s most-quoted stock index.
Apple, in its current $550 incarnation, is simply too big for the Dow to include at this point—even more so than it was last summer at $325. Maybe George Mitchell or Kofi Annan can get management and the Dow Jones folk together at Camp David to hammer out some sort of accord … perhaps a five-for-one stock split in exchange for an apology and an order for a thousand of the latest-model iPads.
Then, and only then, will Apple stock—finally acknowledged and vindicated—be free to dive, humiliating the frequently late-to-the-game keepers of the Dow Jones Industrial Average.