Apple, Google contenders as Dow comes due for update

Traders monitor the Dow Jones Industrial Average on the floor of the New York Stock Exchange on April 23. (Spencer Platt / April 30, 2012)

The Dow Jones Industrial Average stock index is due for an overhaul, and new-tech giants like Apple Inc. and Google have good arguments for joining the elite 30 companies at the expense of old-industry stalwarts like Alcoa Inc., Barron's said on Sunday.

The business weekly said the Dow has no timetable, but a new company or two could be added in the next year.

The three most likely stocks to be replaced in the index are aluminum maker Alcoa, Bank of America andHewlett-Packard, Barron's said in its latest edition.

"The guardians of the Dow need to ensure that this benchmark, created in the 19th century, stays relevant for a 21st century market," it wrote.

Yet admitting Apple, the world's most valuable company with a market capitalization of roughly $563 billion, or Google, would be difficult, Barron's said, because of the way the index is calculated. Unlike the Standard & Poor's 500 and other major indexes, the Dow weighs its 30 components based on the absolute price of their shares.

Apple, whose shares on Friday closed at $603, would overwhelm the index with a 26 percent weighting. That is double the influence of current Dow component IBM, whose $207 stock price gives it a 12 percent weighting in the index, Barron's said.

Barron's said the heavy weighting that Apple would command at its current share price could prove a barrier to becoming a Dow component. To guarantee a Dow spot, Barron's said, Apple would have to split its shares by five-for-one or 10-to-one. But Barron's noted that Apple has not split its stock since 2005.

The lack of splits poses difficulties for the Dow because high-priced components like IBM exercise a growing impact while low-priced members like Alcoa, Bank of America andGeneral Electric get marginalized.