Nike’s (NKE) position inside the Dow Jones Industrial Average is looking increasingly precarious, with analysts pointing to its rock-bottom share price and years of underperformance as key problems.
The Dow Jones Industrial Average has undergone 54 component changes since its founding in May 1896, and another reshuffle appears to be approaching.
Unlike the market-cap-weighted S&P 500 and Nasdaq Composite, the Dow is a share-price-weighted index, making a stock’s price a central factor in its influence and eligibility.
Nike closed trading on July 10 at just $44.37 per share, making it by far the lowest-priced component among the Dow’s 30 members.
That low price translates directly into minimal influence on the index, a problem compounded by Nike’s dramatic underperformance since joining the Dow in September 2013.
While the Dow itself has surged 242% since Nike’s addition, the footwear and apparel giant has managed a gain of only 29% over that same period.
Nike’s failed direct-to-consumer strategy damaged previously profitable wholesale relationships, and a multiyear turnaround effort makes it an unlikely candidate to retain its Dow membership.
Berkshire Hathaway (BRKA)(BRKB) has emerged as the most compelling candidate to replace Nike, given its broad business exposure and elite long-term performance record.
Although Berkshire is technically classified as a financial company and is the parent of insurer GEICO, it also wholly owns roughly five dozen businesses spanning retail, railroad, insurance, manufacturing, restaurants, and energy.
Berkshire’s Class B shares (BRKB) were trading at $494 as of July 10, placing them comfortably within the range of current Dow components, with only three trading below $114 per share.
The conglomerate that now-retired Warren Buffett built over six decades appreciated by approximately 6,100,000%, a performance record that dwarfs virtually every benchmark.
Berkshire also carries a nearly $349 billion investment portfolio, which includes significant stakes in several existing Dow components such as Apple (AAPL), American Express, and Alphabet (GOOG).
That concentration in existing Dow names represents the primary complication, as adding Berkshire could effectively deepen the index’s exposure to those companies further.
Despite that overlap, Berkshire’s diversified operating businesses and dominant long-term track record make it the most logical and natural successor to Nike’s Dow seat.
S&P Dow Jones Indices, which manages the composition of the index, considers share price and overall representativeness when making additions and removals from the 30-component benchmark.
With six technology stocks already represented in the Dow, a consumer-facing or diversified conglomerate like Berkshire would add meaningful balance to the index’s composition.
