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April 29, 2012
18:16 EDTWFC, BAC, AAPL, IBM, HPQ, BRK.A, AA, GOOGApple and Google are the leading candidates to enter the DJIA, Barron's reports
The Dow Jones Industrial Average, or DJIA, hasn't adjusted its component companies since 2009 and is overdue for a makeover, Barron's reports. Since that time, Apple (AAPL) has emerged as the world's most valuable company, with a market value of $570B. Also not on the DJIA list is online advertising-and-search behemoth Google (GOOG). Both represent major shifts in the global business landscape in ways that current Dow components such as Hewlett-Packard (HPQ), Bank of America (BAC) and Alcoa (AA) do not. Yet admitting Apple or Google -- or any other high-priced stock -- would be difficult, given the way the index is calculated based on the absolute price of their shares. With a price of around $605, Apple's shares would overwhelm the index with a 26% weighting. That is double the influence of current Dow component International Business Machines (IBM), whose $207 stock price gives it a 12% weight in the index. Given its big daily swings, Apple alone could move the Dow regularly by 100 points or more. As for Google, it is planning a stock split that would cut its share price in half, to about $300. But even at that level, it would have a hefty 15% weighting in the average. One solution would be to adjust the way the Dow is calculated. Other potential index additions include Berkshire Hathaway (BRKA) and Wells Fargo (WFC), which pose no problem under the current calculation system. Reference Link
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