The Dow Jones Industrial Average (DJIA) has stood as one of Wall Street's most closely watched barometers of market health for over 130 years. Originally comprising just 12 industrial stocks, the index has expanded to include 30 diversified multinational corporate giants.

The index itself is subject to periodic changes. Since its inception on May 18, 1896, there have been 54 instances of constituents being added or removed. A new adjustment may be imminent: Nike (NYSE: NKE) appears highly likely to be removed, with the trillion-dollar conglomerate Berkshire Hathaway (NYSE: BRK.B) emerging as the most logical replacement candidate.

Nike's Struggling Performance as a Dow Component

S&P Dow Jones Indices considers multiple criteria when adjusting the Dow's components, with stock price being a central factor. While indices like the S&P 500 and Nasdaq Composite are market-capitalization weighted, the Dow Jones Industrial Average is a price-weighted index. For instance, despite being the world's most valuable public company, Nvidia's weight within the 30-stock Dow ranks only 20th due to its share price of around $211.

As of July 10th, Nike closed at just $44.37, making it the lowest-priced stock among the Dow's 30 constituents and giving it a minimal impact on the index's movement. Beyond its low weight, Nike has consistently underperformed the broader market since its addition to the Dow in September 2013. While the Dow has gained 242% since then, the sportswear giant's shares have risen only 29%.

Nike's direct-to-consumer strategy has progressed slower than expected, simultaneously straining its historically profitable wholesale partnerships. While these operational issues may be fixable, S&P Dow Jones Indices is unlikely to retain a company undergoing a multi-year business turnaround within the prestigious Dow roster.

Berkshire Hathaway's Potential Dow Inclusion Moment

Removing Nike does not necessitate replacing it with another retailer. With six technology stocks already in the Dow, adding a consumer-facing conglomerate would improve the index's sectoral balance. At its core, Berkshire Hathaway is a financial group (fully owning insurer GEICO) with a nearly $349 billion investment portfolio. It also wholly owns approximately 60 operating businesses across retail, railroads, insurance, manufacturing, restaurants, and energy, thereby enriching the index's exposure to consumer and industrial sectors.

A few years ago, Berkshire Hathaway would not have been a suitable candidate due to the historically high price of its Class B shares. However, the Dow's price structure has evolved; currently, only three constituents trade below $114 and only ten below $211. With Berkshire Hathaway B shares priced at $494 as of July 10th, it now fits comfortably within the index's current price profile. This trillion-dollar conglomerate, built by the now-retired Warren Buffett, has a long history of significantly outperforming the S&P 500, with its share price soaring an astonishing 6,100,000% during his six-decade tenure.

The sole obstacle to Berkshire Hathaway's inclusion is its aforementioned $349 billion investment portfolio, which holds significant stakes in several current Dow components, including Apple, American Express, and Alphabet (Google's parent). Adding Berkshire could further concentrate the index's exposure to a handful of large-cap stocks. Despite this concern, if S&P Dow Jones Indices decides to remove Nike, Berkshire Hathaway remains the most rational replacement.

Is Berkshire Hathaway a Buy Now?

Before considering an investment, it's worth noting that a leading investment research service recently identified the ten best stocks for long-term investors to buy now, and Berkshire Hathaway did not make the list. The selected stocks are believed to have strong long-term growth potential. Historical examples of the service's stock picks highlight their potential: a $1,000 investment in Netflix when it was recommended on December 17, 2004, would now be worth $398,160. Similarly, a $1,000 investment in Nvidia when recommended on April 15, 2005, would now be worth an astounding $1,249,202. This impressive long-term track record, which has seen the service's picks outperform the S&P 500 fourfold, is a key reason for its popularity among investors.