Cramer's 'Mad Money' Recap: Dow Drops the Ball

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"Dow Jones must make their index look more like the market," Jim Cramer told viewers of his "Mad Money" TV show Monday.

Cramer took issue with Dow Jones' re-indexing of the Dow Jones Industrial Average by dropping both Altria (MO Quote), a company which he owns for his charitable trust Action Alerts PLUS, and Honeywell (HON Quote), and adding Bank of America (BAC Quote) and Chevron (CVX Quote) to the index.

There are three big themes in the economy that Cramer said the DJIA needs to emphasize. The first is the importance of the natural resource sector as a growing part of our economy. The second is the strength of companies that sell beyond the US border to the rest of the world. And third, the decline in both the size and the worth of the financial sector.

"None of these themes were reflected in today's choices," Cramer noted.

Cramer said it was a horrible move to remove Honeywell from the average. The company, he said, is finally starting to turn itself around and is a good representative of U.S. manufacturing.

Cramer also mocked the inclusion of Chevron as an oil play. He would have chosen another stock from his charitable trust, ConocoPhillips (COP Quote), which he says is better run and has more natural gas exposure.

He also would have considered adding Freeport-McMoran (FCX Quote), another stock Cramer owns for Action Alerts Plus, or Schlumberger (SLB Quote) as better representatives of the oil industry.

Cramer reserved special outrage for the inclusion of Bank of America. "We shouldn't be adding a financial, we should be removing one," he said.

Cramer suggested getting rid of American International Group (AIG Quote), which he declared is "a travesty masquerading as an insurance company." Cramer even went as far as adding AIG CEO, Martin Sullivan, to his Wall of Shame. "This guy gives incompetence a bad name," he added.

Cramer made a few other suggestions for the Dow as well. Why not dump Pfizer (PFE Quote)? he asked. The average already includes both Johnson & Johnson (JNJ Quote) and Merck (MRK Quote).

The index also includes both AT&T (T Quote) and Verizon (VZ Quote), which represent both of the remaining large telecom companies. Cramer suggested adding Cisco (CSCO Quote) as a more diversified technology company, and even Google (GOOG Quote), as a company now getting 43% of its sales overseas.

Playing Defense

"When it comes to Washington, the Street once again got it wrong," Cramer said referring to a cautious Goldman Sachs report last week suggesting that defense spending was on the decline.

In truth, Cramer said, the White House asked Congress for $515 billion in defense spending for this year, a 7.5% increase over last year's budget.

"The defense contractors are in bull-market mode," Cramer said. He continues to recommend Raytheon (RTN Quote), a stock which he owns for Action Alerts Plus. Raytheon, he said, has the highest international sales among all of the defense contractors, which makes it especially attractive.

Raytheon, Cramer points out, is also not getting the love it deserves on Wall Street. "The analysts can't like every stock," he noted, "but this is one that should not be ignored." He recommended waiting for any weakness in the stock, then pulling the trigger.

Mac Attack

"When analysts abandon good companyies with great stocks for bad reasons, you want to buy," Cramer said He cited McDonald's (MCD Quote) as a recent example of this trend.

On Jan. 28, McDonald's reported better-than-expected quarterly results, but also announced worse-than-expected same-store sales numbers for December. Afterward this announcement, Bear Stearns downgraded the stock, causing the shares to fall as low as $50.10.