Will Apple And AT&T Break This Dow Transition Pattern?
There was big news for the Dow Jones Industrial Average on Friday, as the largest corporation in the world, Apple Inc (NASDAQ: AAPL) will be joining the exclusive 30-member club by taking the spot of AT&T Inc (NYSE: T).
This is certainly good for the reputation of Apple as a blue-chip stock, and the move likely doesn't do much good for AT&T's public image. However, does the transition really matter for shareholders?
Here's a look at how the other transitions the Dow has made in the past five years have worked out for shareholders in the six months following the move.
The last batch of changes to the Dow took place on September 23, 2013 when former members Alcoa Inc (NYSE: AA), Bank of America (NYSE: BAC) and Hewlett-Packard Co (NYSE: HPQ) were replaced by new members The Goldman Sachs Group Inc (NYSE: GS), Nike Inc (NYSE: NKE) and Visa Inc (NYSE: V).
Here's a look at how the stocks performed following the transition:
Interestingly, the three top-performing names of the bunch were the three names that left the Dow. In fact, all three former members more than doubled the return of the S&P 500 in the six months following their Dow departure. Two of the three new Dow members lagged the S&P 500 during that same stretch.
Prior to the 2013 membership change, the only change to the Dow in the past five years was the September 2012 addition of UnitedHealth Group Inc (NYSE: UNH) and exit of Kraft Foods Group Inc (NASDAQ: KRFT).
Once again, the big winner following the transition was the stock that was booted from the index, as Kraft outperformed the S&P by a wide margin while UnitedHealth lagged the market and even produced a negative return following the transition.
Will The Pattern Hold?
Only time will tell whether this counter-intuitive pattern will hold for Apple and AT&T. So far this year, Apple stock has surged nearly 15 percent, while AT&T is slightly down year-to-date.
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