News that Apple will be added to the Dow Jones Industrial Average in favor of AT&T has thrown market commentators into a tizzy, but it's really not that big a deal, says Aaron Task, editor-at-large of Yahoo Finance.
"Adding Apple to the Dow is an obvious and overdue move if the index really is supposed to be a barometer of the 30 most-important American companies," he writes.
Apple has the largest market capitalization of any U.S. corporation by far--$743 billion. Its iPhone, iPod and iPad are cultural icons, and many analysts predicted success for the Apple Watch.
So what does Apple's insertion into the Dow 30 mean for its stock price? Companies entering the Dow usually beat the S&P 500 by 3 percentage points in the 30 days after the announcement, according to Bernstein Research.
But the effect generally doesn't last. There is a "clear pattern" of good performance prior to the addition then "bad performance following," Jason Goepfert, president of Sundial Capital Research, told MarketWatch.
Deutsche Bank analyst Sherri Scribner is one of the analysts looking for big things from the Apple Watch. The watch's sales may total $26 billion a year by 2018, she wrote in a commentary obtained by MarketWatch.
But that doesn't make her bullish on the company's stock. Scribner has a hold rating, and her target price of $110 represents a 13 percent drop from Thursday afternoon's level of $126.95.
Scribner predicts that watch sales will at most make up 10 percent of total revenue and earnings-per-share by 2018. Apple's revenue totaled $200 billion in the latest 12-month period.
Most analysts are more bullish than Scribner, with an average price target is $134.92, according to FactSet. And many experts see a market capitalization of $1 trillion for Apple as the next market milestone.
Apple’s a "dynamo," thanks to its business model of controlling its hardware while leaving software open, UBS analyst Steven Milunovich writes in a note to clients, obtained by USA Today.
He has a $150 price target for the shares.
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