In case you’ve been living underwater, here’s the skinny: Apple’s joining the Dow next week, replacing AT&T (NYSE: T).
As the always-on-point Josh Brown points out: “The Dow Jones Industrial Average has become famous over the years for adding names at or near generational peaks – and technology names in particular – after they’ve already been rewarding shareholders for years (decades).”
So…is it nowhere but down for Apple?
I doubt it.
It probably won’t be the growth machine it was ten years ago, but it should be fine. Apple’s joining the likes of Johnson & Johnson (NYSE: JNJ) and Walmart (NYSE: WMT), sitting in their rockers, writing dividend checks and listening to AM radio. No need to panic, though.
But what about AT&T? Now that the Dow evicted it, it’s time for taps, right?
Wrong…
See, stocks booted from the Dow can trigger what I like to call a “hate trade.” These are the stocks your worst enemy wouldn’t wish on you. They’ve been heaved out of a third-story window, run over by a truck, and given last rites.
Just check out what happened to Alcoa (NYSE: AA) after the Dow gave it the back of the hand. It turned into the perfect hate trade:
In September 2013, the Dow canned the aluminum maker after 54 years. The stock was a joke for a long time. It never met earnings and always seemed to trend lower.
But as it turns out, getting tossed from the Dow was the best thing that ever happened to Alcoa. Here’s a chart I showed you last year documenting its startling comeback:
Just look at that triple-digit move. After the Dow showed Alcoa the door, a massive reversal carried it to gains north of 102% in about a year.
With this “hate trade” in mind, let me ask you an important question:
Does anyone like AT&T now that the Dow has evicted it?
Nope. I bet you hate it. After all, AT&T has done squat since summer, 2013 …
That’s nearly three years of hoping and waiting—while the S&P 500 soared nearly 44%. No wonder this slacker got the boot.
But as Alcoa showed, getting booted from the Dow might be the best thing that can happen to a stock. Everyone and their mother-in-law hates AT&T right now. That means we’ll be watching it once it’s living in a box. It’ll probably sell off at first. But we could soon get a screaming “buy” signal for an Alcoa-esque run. Can you say, contrarian?
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