Apple, World’s Most Valuable Tech Company, Bumps AT&T Off of the DOW Index

In an ironic twist America’s second largest cellular carrier, AT&T, Inc. (T) was bumped from the Dow Jones Industrial Average this week by an iconic brand who once helped drive its value with an exclusivity arrangement — Apple, Inc. (AAPL).  Apple who makes the wildly successful iPad tablet computer, iPhone smartphone, iPod portable media player, and Mac computer line (as well as numerous other lesser products) joins the ranking for the first time.

I. What’s the Dow?

Devised by iconic Wall Street Journal editor Charles Dow, the Dow Jones Industrial Average was a listing of the cumulative value of the most valuable companies whoses shares are publicly listed on the New York Stock Exchange (NYSE).  The name pays tribute to eminent late nineteenth century Edward Davis Jones, who cofounded the Dow Jones & Company financial service in 1882 with Dow.  Originally a listing of 12 companies, the Dow expanded to 20 companies in 1916 and then to 30 companies in 1928 where it has remained fixed ever since.

Some might wonder why it took so long for Apple to join the Dow.  For several years Apple has been rated as the most valuable brand in the world.  Apple is also by far the most valuable company in the U.S. in terms of market cap, with a current valuation of $736.60B USD.  Apple was also the first American company to break $700B USD in market valuation, not adjusted for inflation.

Adjusting for inflation, though, its dominance looks a little less absolute as other tech companies have historically seen higher valuations adjusting for inflation.  Int’l Business Machines Corp. (IBM) in 1967 had a value of $193B USD, which is about $1.35T USD in 2015 dollars.  (The Motley Fool carries a good writeup on inflation adjusted market caps.)

Microsoft Corp. (MSFT) was worth $620.6B USD in 1999 — about $870.6B USD.  General Electric Comp. (GE) had a market cap of $507B USD back in Dec. 1999 — around $710B USD in today’s money.  GE and IBM were in and out of the Dow multiple times as their fortunes shifted up and down over the course of the twentieth century.  GE first entered the Dow in 1896.  IBM entered in 1932.

While it’s true that the Dow does tend to include the most profitable companies in the country and those with the highest market cap, it’s not surprising historically to see a company like Apple post top 10 performance for 5+ years without cracking the Dow.  That’s because the Dow does not depend on market cap, annual earnings, or annual dividends alone.  Rather it chooses companies using a variety of criteria including

  • Market capitalization
  • Stability/diversity of product line
  • Annual profit and revenue
  • Reputation/brand recognition
  • Connections to other highly valued companies
  • Position in company’s primary sector

Today majority owned and maintained by McGraw Hill Financial, Inc. (MFHI) who occasionally adds and removes companies from the list to reflect changes in company status.  Some years two to three such changes will be announced — other times the Dow can go years without a change.

The Dow is widely consider one of the most useful barometers of the U.S. economy as it tends to include the most essential corporate pillars of the U.S. market as its members.  The ranking has been criticized at times, though as it price-weights the contribution of each component to the overall Dow Jones Average value.

II. Who’s In the Dow Now?

Today most of the other Dow components (besides Apple) are virtually all involved somehow in the tech sector.  They are:

  • The 3M Comp. (MMM) (added in 1976)
  • American Express Comp. (AMX) (added in 1982)
  • Boeing Comp. (BA) (added in 1987)
  • Caterpillar Inc. (CAT) (added in 1991)
  • Chevron Corp. (CVX) (added in 2008)
  • Cisco Systems, Inc. (CSCO) (added in 1987)
  • E. I. du Pont de Nemours & Comp. (DD) (added in 1935)
  • Exxon Mobil Corp. (XOM) (added in 1928)
  • General Electric Comp. (GE) (added in 1907)
  • Goldman Sachs Group Inc. (GS) (added in 2013)
  • Home Depot Inc. (HD) (added in 1999)
  • Intel Corp. (INTC) (added in 1999)
  • IBM (added in 1979)
  • Johnson & Johnson (JNJ) (added in 1997)
  • JPMorgan Chase & Comp. (JPM) (added in 1991)
  • McDonald’s Corp. (MCD) (added in 1985)
  • Merck & Comp., Inc. (MRK) (added in 1979)
  • Microsoft (added in 1999)
  • Nike Inc. (NKE) (added in 2013) 
  • Pfizer Inc. (PFE) (added in 2004)
  • Procter & Gamble Comp. (PG) (added in 1932)
  • Travelers Companies Inc (TRV) (added in 2009).
  • UnitedHealth Group Inc. (UNH) (added in 2012)
  • United Technology Corp. (UTX) (added in 1939)
  • Verizon, Inc. (VZ) (added in 2004)
  • Visa Inc. (V) (added in 2013)
  • Wal-Mart Stores, Inc. (WMT) (added in 1997)
  • The Walt Disney Comp. (DIS) (added in 1991)

Of these Cisco, Intel, IBM, Microsoft, and Verizon can be viewed as the other traditional tech firms of the pack.

III. Who Might Be Getting In Soon?

The move leaves Verizon (market cap: $199.26B USD) as both the only U.S. cellular carrier in the Dow and the only cable TV/internet company in the Dow.  This sort of makes sense as Verizon has for some time now been America’s top cellular carrier in both subscribers and average revenue per user (ARPU).  AT&T remains the closest carrier outside the Dow.  Comcast Corp. (CMCSA) (market cap: $153.48B USD) is perhaps the closest “pure” cable to perhaps getting listed.  If its merger with Time Warner Cable Inc. (TWC) (market cap: $44.40B USD) goes through it is hard to fathom it not earning a spot in the Dow.

Another major tech/hardware company not in the Dow is Oracle Corp. (ORCL) (market cap: $192.66B USD).  Oracle has followed a steady growth path over the past decade, but was damaged by the collapse of the so-called “dot-com bubble”, an event that made the Dow more wary of internet-dependent companies in general — even those that aren’t so-called “dot com” companies.

Perhaps the most notable tech company not in the DOW is Google Inc. (GOOG) (market cap: $393.85B USD).  It’s stock value is just a little more than Microsoft (market cap: $354.46B USD) and much more than Cisco (market cap: $150.10B USD), Intel (market cap: $159.94B USD), IBM (market cap: $159.35B USD), and Verizon (market cap: $199.26B USD).  Google will likely eventually enter the Dow as other companies fall down the ranks.

Other perennial internet powers hovering on the fringe of the Dow include, Inc. (AMZN) (market cap: $180.25B USD), ).  Other top internet companies that have yet to join the ranks include Facebook Inc. (FB) (market cap: $227.66B USD), Alibaba Group Holding Ltd. (BABA) (market cap: $213.78B), and eBay Inc. (EBAY) (market cap: $71.49B USD).  These companies are highly valued by investors for their brand and utility, they have yet to catch up to Dow members in profitability.

Apple and Microsoft are notably the only PC makers to be listed in the Dow.  The next highest volume American PC maker — Hewlett Packard Comp. (HPQ) has a market cap of only $62.12B USD.  

No automaker is currently in the Dow.  General Motors Inc. (GM) was dropped in 2009 amidst its bankruptcy — its current market cap is $60.62B USD.  Ford Motor Comp. (F) is today worth slightly more, at $63.67B USD.  Ford has never been in the Dow, surprisingly.  Chrysler was a perennial name in the Dow in the twentieth century.  It acquired American Motors Corp. — a company formed by the 1954 merger of Hudson Motor Car Comp. and Nash Motors Comp.  Nash had been a regular Dow component starting in the 1930s and Hudson Motors had made the Dow too on occasion.  Other defunct automakers also made the Dow, including the Studebaker Corp., American Car and Foundry Company, and Mack Trucks, Inc.

Likewise Boeing is the aircraft/defense focused firm in the list.  The next biggest defense contractors Honeywell International Inc. (HON) (market cap: $80.92B USD), Lockheed Martin Corp. (LMT) (market cap:$62.90B USD), General Dynamics Corp. (GD) (market cap:$45.27B USD), Raytheon Comp. (RTN) (market cap: $32.87B USD), and Northrop Grumman Corp. (NOC) (market cap: $32.42B USD).  of these only Honeywell has made the Dow, joining the ranks in 2003 and lasting five years before falling out in 2008.

Wikipedia carries a more in-depth listing of all the companies that have been in the Dow over the years.