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Dow Adds Chevron, BofA, Drops Honeywell, Altria

CNBC.com
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The Dow Jones Industrial Average, the most widely known barometer of the U.S. stock market, is making the first change in its lineup of 30 stocks in nearly four years, dropping Honeywell and Altria and adding Chevron and Bank of America.

The changes, the first since 2004, will take effect on Feb. 19.

Both Chevron and Bank of America rose immediately following the news, which came out before the bell, while Honeywell and Altria fell.

This will mark Chevron's third time as a component of the Dow 30. It was last dropped from the index in 1999.

"Chevron was taken out because in 1999 oil was, what, 10, 12 dollars a barrel? It just wasn't the global presence that it is today," John Prestbo, Dow Jones indexes editor and executive director, said on CNBC. "That's why it's coming back in, it's the second-ranking company behind ExxonMobil."

Conversely, as Altria has divested itself of subsidiaries Kraft Foods and the looming move to cut Phillip Morris from its stable, the company has become less representative of the market, a goal the Dow index strives to meet.

"That leaves it a pretty domestic, narrowly focused tobacco company that's moving to Richmond, Va.," Prestbo said. "It isn't the company it was when it was put in the Dow."

Honeywell, meanwhile, has seen its revenue dwindle though its stock price is only about 7 percent off its 12-month high. The company's earnings also have been fairly solid, with an 18 percent gain in fourth-quarter profit.

Still, it stands below the other industrials in the blue-chip index and was considered expendable as the Dow tries to make room for more energy and financial companies.

"As far as Honeywell is concerned, it's the smallest of the industrials that we have in the Dow in terms of sales and revenue," Prestbo said. "Industrials just relatively speaking haven't been keeping up with the rest of the market."

But the sentiment was not universally shared.

Henny Ray Abrams

"I would not have taken out Honeywell at all," said Jim Cramer, host of CNBC's "Mad Money" program.  I think Honeywell was a classic American company that's taking advantage of the rest of the world, which is the one part of the Dow Industrials that is growing."

Reaction to the moves indeed was mixed, with proponents suggesting the Dow needs to get more current with what is moving the market and opponents saying the index made the wrong call as to which companies should be removed.

"The whole Altria thing makes all the sense in the world. Now that they're spinning off the international side, it's going to be a very small company," said Nadav Baum, managing director of investments for Pittsburgh-based BPU Investment Management. "If you're not making changes on a five- to six-year basis, if it fact warrants a change, then it's not really a reflective index. When you look at it now, it's more reflective."

Baum agreed that Chevron's position as a player in oil, which has become a dominant force in the US and world economy, merited it a place in the Dow.

But Cramer remained unconvinced that the index made the right moves.

"This is the worst oil and the worst finance that you could possibly add, the ones that are the most challenged:  Bank of America, because of the Countrywide and because of the bad loans, Chevron because of the ridiculously under-performing nature of the stock, because it doesn't find oil like it used to, and isn't making that much money," he said.
"So, thanks a lot, Dow."