Now that the AT&T (NYSE:T) has been kicked off in the Dow 30 and replaced by Apple (NASDAQ:APPL), a lot of analysts are saying that this might be a good time to buy into the wireless service provider. AT&T has a massive market share as far as wireless telecom services is concerned. Moreover, it’s a major player in all the major telecoms markets in the United States. It accounts for a huge chunk of total telecoms revenues.
Regardless of its size, however, it still got the boot. It’s no surprise why. I mean the Dow Jones Industrial Average had to make way for Apple and Apple is the world’s biggest company in terms of market valuation. Something got to give, and the powers chose to yank AT&T to make way for Apple in the index.
Considering how solid AT&T is, regardless of whether it’s a Dow component or now, it’s definitely a good time to take a look at the stock. You have to remember that whenever a stock is either listed on an index or taken off an index, there are many funds and investment managers that invest following the index. Meaning, they would invest hundreds of millions of dollars in stocks that are members of the index. When those stocks get taken off the index, they unload their shares because the whole point of the financial product that they’re selling to investors is that they mirror the index.
If there’s enough of these indexes, it may put downward pressure on AT&T. Pay attention to the word “may.” The problem is there are also a lot of funds following AT&T that would gladly scoop up those unloaded shares. The bottom line is don’t expect AT&T to all of a sudden become a bargain stock. That’s not going to happen. However, there will be some downward pressure as more and more funds adjust their index tracking holdings.