Apple Inc (AAPL) was attributed a lower weight in the tech-heavy Nasdaq 100 due to the rebalancing of the index by the Nasdaq OMX Group that is responsible for maintaining the Nasdaq index, effective May 2, 2011.
Apple currently represents about 20.49% of the total index weight and post rebalancing, Apple will carry a weight of approximately 12.33%. This significant reduction is on account of the Nasdaq OMX Group’s realignment policy, which is based on respective market capitalizations of companies.
The idea behind the realignment was to reduce the volatility of the index, which was increasingly being influenced by Apple. Since the previous realignment in 1998, Apple as a company has grown manifold and shares of Apple have appreciated a staggering 3,779%, representing a market capitalization of $332 billion. In 1998, market capitalization was just $2.1 billion, according to Bloomberg data.
The companies that saw their weights increasing as a result of the rebalancing include bellwethers like Microsoft Corp (MSFT), Oracle Inc. (ORCL), Cisco Systems (CSCO), Intel Corp (INTC) and Dell Inc. (DELL).
In our view, Apple still remains the favorite stock in the technology sector despite losing weight simply because of its growth trajectory and the timeliness of innovative product launches, which have made it a wealth creator for its investors.
We believe Apple will outperform its peers on the back of its innovative products, including the recently launched iPad 2. Though Apple has some supply related constraints due to the recent Japan quake and is entangled in a couple of lawsuits, we believe that these factors would not materially impact the reputation the company has built over the last decade.
The reduction of weight in the index might have a short-term negative effect on Apple share prices (down a couple of dollars since the announcement).
Thus we have a Zacks #3 Rank for Apple, which translates into a Hold rating in the short term.