Up 231%, Is RTX Proving Why It Was a Mistake for Honeywell to Replace RTX in the Dow Jones Industrial Average?

Honeywell has lagged badly since joining the Dow, delivering a 56.2% total return versus RTX's 231.1% since Aug. 31, 2020. The article argues Honeywell's conglomerate structure hurt performance, cites Elliott Investment Management's push for breakup, and notes the company has already spun off Solstice Advanced Materials, which has gained 79.4%, with Honeywell Aerospace slated to separate on June 29. The piece is largely an opinionated comparison of Honeywell and RTX rather than a new market-moving event.

Analysis

The market is implicitly voting for structural simplification over conglomerate optionality. That matters because the valuation gap is unlikely to be closed by narrative alone; it usually takes a clean capital structure, visible standalone margins, and a hard reset of incentive systems before multiple expansion sticks. The biggest second-order winner is not just the sum-of-parts math, but the relearning effect across industrials: investors will now demand separation pressure on any diversified name where capital allocation is obscured by mixed-quality segments.

RTX benefits from being the scarce asset in the room: a pure-play with clearer earnings transmission from geopolitics and defense budgets. If the market continues rewarding focus, the spread versus diversified industrials can persist for multiple quarters, especially if defense backlog converts faster than macro-exposed peers can reaccelerate earnings. That said, the defense trade is not free — a sudden easing in geopolitical risk or signs of procurement delays would compress the premium quickly because the multiple is already being underwritten by visibility rather than cyclical growth.

The more interesting setup may be the spin beneficiaries. SOLS already validates the thesis that the market will pay up for smaller, simpler, higher-beta franchises once freed from conglomerate drag, and GE remains the clearest precedent for a multi-year rerating. HONA is likely to become a cleaner benchmark for industrial/automation quality, but the transition period can be messy: index flows, forced ownership changes, and temporary technical dislocations may create better entry points than waiting for the post-spin story to be fully understood. Conversely, HON itself could remain structurally cheap if the remaining business is perceived as the lowest-growth, lowest-moat piece.

Consensus is too focused on whether the breakup is 'good' and not enough on timing and sequencing. The first rerating often accrues to the newest, cleanest entity; the parent can lag for 6-12 months as sell-side models normalize and passive holders rebalance. That creates a window where a relative-value trade can capture the market’s preference for clarity without needing the entire industrial complex to re-rate at once.

Key Decisions for Investors

• Go long RTX vs. short HON in a 3-6 month relative-value pair; thesis is that focused defense earnings remain a higher-quality multiple than the post-breakup residual automation business, with upside if defense budgets stay firm and HON remains a restructuring story.
• Add SOLS on pullbacks for a 1-3 month post-spin momentum trade; keep risk tight because the move is likely to be technical-driven, but the setup benefits from forced re-rating as the market assigns a standalone valuation multiple.
• Initiate a starter long in GE as a template trade for spin-off value creation; hold 6-12 months and use any market-wide industrial weakness to average in, since the catalyst is multiple durability rather than near-term earnings acceleration.
• Buy HONA only after the spin date, not before; prefer waiting for index reconstitution and first-quarter standalone guidance, because the cleaner setup is likely to emerge after technical sellers are done and management can quantify separation costs.
• Avoid chasing HON outright until the market prices the remaining business on standalone fundamentals; if the stock re-trades lower on the spin, use that as a potential value entry only if automation backlog and margin trajectory show stabilization.