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Citi defends AAPL shares

February 15, 2012 – Comments (0) | RELATED TICKERS: AAPL , NDAQ , QQQ

Citi Doubts Apple Nasdaq Re-weighting Chatter

The hulking presence of Apple (AAPL) in major stock indexes — and, as a result, in ETFs — is getting more attention today after a very thorough Wall Street Journal story on the subject this morning. There’s even a cryptic reference to unspecified “talk” that Nasdaq OMX‘s (NDAQ)  Nasdaq 100 may cut Apple’s weighting, again, over at Business Insider.

Citigroup‘s (C) Parin Ghandi has a note out today casting doubt on the idea that Apple will see a re-weighting:

AAPL fell intra-day today from a high of $525 to $502 on the back of news reports about a potential reweighting of AAPL on the NASDAQ, we think that the market capitalization of AAPL is still within the published NDX methodology rules which is not likely to warrant a rebalance. In a nutshell the rules state that:

-          quarterly rebalancing is likely to occur if the weight of one security is greater than 24% and

-    that the collective weight of all securities whose weights are more than 4.5% when added exceed 48% of the index.

An excerpt from the methodology for the NDX is reproduced below:

“the Index will be rebalanced if it is determined that: (1) the current weight of the single largest market capitalization Index Security is greater than 24.0% and (2) the “collective weight” of those Index Securities whose individual current weights are in excess of 4.5%, when added together, exceed 48.0% of the Index. “

The weight of AAPL in the NDX is currently roughly 16.85% (less than the 24% limit) and the combined weight of the stocks with individual weights > 4.5% is currently at 41.1% (AAPL, MSFT, GOOG, ORCL, and INTC fall in this group).

Note that while NASDAQ did do a special rebalance in April 2011, the Index methodology was not changed nor were the list of securities changed during that event.

While there is always a probability for a special rebalance,  AAPL’s market capitalization is still below the threshold limits to warrant any reweighting, we think.

Read the entire article here: