Updated from 7:01 a.m. EST

Who thinks

Alcoa

(AA) - Get Report

is still one of the 30 best representatives of U.S. business?

The index folks at Dow Jones do, apparently. Last month, they yanked

Altria

(MO) - Get Report

and

Honeywell

(HON) - Get Report

from the

Dow Jones Industrial Average

, but they neglected to give Pittsburgh-based Alcoa the boot, too.

There are plenty of reasons why the aluminum giant should have been chopped from the index, which tracks 30 leading U.S. public companies, but they all come down to one thing -- poor management.

"Alcoa was the only major metal producer whose share price went nowhere during the greatest sustained commodity boom of all time," writes Don Coxe, a global portfolio strategist at Chicago-based BMO Financial Group, in a recent report. "That is such a fascinating accomplishment that the company deserves to become a fixture in

business-school textbooks."

Time to Boot Alcoa From the Dow

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Coxe has a point. Over the past year, Alcoa's share price has barely moved. During that same period, metals firm

Freeport-McMoRan Copper & Gold

( RTP) gained more than 50%, while diversified miners

Rio Tinto

( RTP) and

Companhia Vale do Rio Doce

(RIO) - Get Report

have approximately doubled.

At first glance, looking over a longer period might seem to make Alcoa's stock performance look better. But in reality, it looks even worse. That's because although Alcoa doubled since 2003, the others in the group grew between four- and fivefold.

Clearly something is wrong with Alcoa, when not even sky-high metals prices across the complex -- and that includes aluminum -- could help them keep up with the pack.

What exactly is the problem? Victor Lazarovici, a recently retired Wall Street metals analyst with two decades in the business, says Alcoa seemed to "choose a strategy of acquiring second- and third-tier assets, and expanded into manufacturing and casting," which he says is "a bear-market strategy."

He points to the purchase of

Reynolds Metals

in 2000 as an example of bad judgment. The deal originally was to have included the Worsley alumina plant in Australia, which was the crown jewel of the transaction, Lazarovici explains. Along with that came some packaging businesses, a line he says "has no place in a smokestack industry."

Then, regulators insisted that Alcoa promise to dispose of the alumina plant in order to get the necessary antitrust approvals. "Alcoa still went through with the deal," adds Lazarovici.

Alcoa was left with Reynolds,

minus

the key plant, but

with

the misfit packaging businesses. That isn't so good. During an up-cycle in the metals business, the commodity products like ingots, billet and alumina tend to do better than manufactured or semifabricated lines.

(Alcoa did announce recently that it had sold its packaging business to New Zealand firm Rank Group.)

Chuck Bradford, an analyst at Soleil in New York, has another issue -- the prevalence of unusual items in the firm's earnings. For instance, in the first nine months of 2007, restructuring and other charges totaled $413 million. That comes on the back of $543 million for the whole of 2006 and $292 million in 2005.

The underlying point being, what is the quality of earnings at Alcoa?

Bradford also says management seems to be tripping up on its current expansion plans in Trinidad. "They were hoping to have a new smelter up late this year or next year," Bradford says. "Now they haven't even broken ground and have to find a new location."

And then consider the recent decision to appoint former

Merrill Lynch

( MER) chief Stan O'Neal to its board of directors.

"

O'Neal's most notable achievement

was buying a large subprime mortgage issuer when the housing bubble had already begun to shrink," writes BMO's Coxe. "Given that Alcoa's failure to participate in a record run of profitability for metal companies could be called sustained destruction of shareholder value, maybe Mr. O'Neal's record of doing it better and faster made him noteworthy."

So, we've got a poor acquisition strategy, complicated earnings, delayed expansion plans and an inability to excel at the peak of a cycle. What's stopping Dow Jones from wielding the ax?

Bad management isn't enough to get you booted from the world's most exclusive stock market club, explains John Prestbo, executive director of Dow Jones Indexes. "We don't do a management check for an existing company," he says. "I think it might be a factor when we add a company for the first time."

But by leaving Alcoa in the Dow 30, Dow Jones is actually undermining one of the core goals of the index -- representing the broader market. "The index is a stock index, so it has to reflect the stock market," explains Prestbo.

These days, Alcoa doesn't appear reflective of the metals sector it's meant to represent, because its limp performance stands out when compared with stellar showings of the other major miners.

Naturally, Alcoa disagrees. Spokesman Kevin Lowery says Alcoa's products touch all major parts of the economy and have a worldwide impact, including operations in automotive, aerospace, packaging and construction, as well as in the commodity businesses.

"We have a global market presence which is enviable," he says. "We are in a prime position to take advantage of both the upstream and downstream parts of our business."

He also points to two consecutive years of record earnings and a large-scale capital investment program. And, he says, the series of unusual items on the income statement had a lot to do with management's desire to ditch nonperforming assets.

Regarding the delays in the plans to construct a smelter in Trinidad he says the firm routinely looks at many new ventures. "Some projects fall by the wayside and this was one of them," Lowery adds.

Lowery also notes that for the past 10 years, the total return -- stock appreciation plus reinvested dividends -- from holding Alcoa's shares has been better than either the

S&P 500

or the S&P 500 Materials index. Indeed, the value of $100 invested in the metals firm would have grown to about $250, exceeding both measures, but still trailing substantially other large stocks in the group.

At any rate, sooner or later Alcoa will probably be eliminated from the Dow, if not by the managers of the index then through an acquisition. The metals patch has seen frenetic takeover activity over the past few years.

BHP

(BHP) - Get Report

, for instance,

has renewed its offer to take over

Rio Tinto

( RTP), and last year Rio itself acquired Canada's aluminum firm

Alcan

.

So, what then for the Dow 30? Which stock should replace Alcoa? It could be another metals company. But due to another of Dow Jones' index rules, a firm must be U.S.-based to be included in the Dow. That doesn't leave many choices in the metals patch.

Evan Smith, co-manager of the

(PSPFX) - Get Report

Global Resources Fund, says now that Freeport is fully merged with

Phelps Dodge

, the firm could make a good candidate.

Before it took over Phelps last year, Freeport suffered from the problem that it only had one mine, and that was in politically unstable Indonesia.

"That made it a problem to have it in the portfolio, let alone the Dow," says Smith.

Others say that maybe it's time to look at other areas in the commodities arena.

"I tend to think

Monsanto

(MON)

would be a good pick," says Doug Roberts, chief investment strategist at New Jersey-based specialty economics firm Channel Capital Research. "Commodities is what's driving the economy rather than just metals."

Monsanto supplies the farm belt with genetically modified seeds. As such, the stock is benefiting greatly from the boom in farming. Alternatively, Roberts says the index folks may decide to look even further afield as they work to maintain industry and sector balance.

Whatever Dow Jones does decide to put in the DJIA, let's hope it doesn't pick another Alcoa.

Know What You Own:

Alcoa operates in the aluminum sector, and some of the other stocks in its sector include

Aluminum Corp. of China Limited

(ACH) - Get Report

;

Alumina Limited

(AWC)

and

Kaiser Aluminum Corp.

(KALU) - Get Report

. These stocks were recently trading at $47.49, $23.50 and $76.77 respectively. For more on the value of knowing what you own, visit

TheStreet.com's

Investing A-to-Z

section.