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Apple Shares Too Hot for the Dow

The Dow Jones Index is where big companies land once the rapid growth stops and the numbers get more predictable.

Workers apply the Apple logo to the exterior of the Yerba Buena Center for the Arts in preparation for an Apple special event January 26, 2010 in San Francisco, California.
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Workers apply the Apple logo to the exterior of the Yerba Buena Center for the Arts in preparation for an Apple special event January 26, 2010 in San Francisco, California.

Apple, as its earnings report will show after the bell, is neither a slow-grower nor predictable. (Update: Apple Profit Beats Forecasts, but iPad Sales Light)

The 30-company blue-chip index is a very select club chosen by John Prestbo, chairman of the Dow Jones Index Oversight Committee. And it's not like Prestbo is an Apple hater.

Prestbo told the Los Angeles Times that Apple is "eminently qualified for inclusion in the Dow." He then went on to explain how Apple and its $300-plus stock won't be included in the index any time soon.

Apple "at $300 would distort the index," Prestbo said. "For all 30 stocks to work together to tell the market's story, their prices must be within what I'd call a modest range."

Apple shares are up 200% in the past two years. Its revenue growth for the year ended last month will easily exceed 75%. That's the Apple story, but hardly the market's story.

Stocks in the Dow are price-weighted, meaning the bigger the price, the more sway the stock has over the index.

IBM , for example, is not the biggest company by market cap — Exxon and Microsoft are larger — but it has the highest stock price at $141, giving it an over-sized influence accounting for nearly 10% of the index.

And even if Apple executed a stock split to break its shares into smaller parts, the company would hardly qualify as the type of sector representative Prestbo looks for.

This should be no great surprise, really. The Dow has never embraced the fast moving names of tech. Game-changers like AOL and Google are among the omitted.

If Apple did get added to the Dow, it wouldn't necessarily be a good sign for the stock.

Microsoft is a classic case. The tech giant was added to the Dow in 1999 when the stock was trading (split adjusted) in the $40s. A few months later the stock peaked, as did the Internet bubble, and the shares of the predictable, slow-grower have been on a flat line for the past 10 years.

If anything, investors should take heed if the Dow does come calling on Apple.

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Disclosures:

TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

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