Burke notes that the Dow has followed a consistent pattern after each event: weakness following the event as the market absorbs uncertainty (the average is a 3.5% decline after one month; the post-Sept. 11 decline was 2%), then a powerful, long-lasting rebound as patriotism and war spending boost the economy.

In all but one case (1941-42), Burke notes that the Dow has been higher one year after the attack than it was on the day before the attack. And in every case, the Dow has been substantially higher 18 months later. The greatest advance, 64%, followed the U.S.' entry into World War I, and the second greatest, following the sinking of the USS Maine, resulted in a 51% gain after 18 months.

Burke concludes that war is "unambiguously bullish" -- a more succinct version of the view I expressed two weeks ago ("The Dow's Secret Weapon: Defense") when arguing the case for shares of the large Pentagon contractors. The Defense Department has a free hand in the Bush administration and few critics in Congress. Big-ticket programs keep rolling out below the public radar.

In just one minor example, a few days ago, the Defense Advanced Research Projects Agency announced that it had instructed Lockheed Martin (LMT Quote) and Northrop Grumman (NOC Quote) to continue to develop a next-generation Quiet Supersonic Platform aircraft technology program.

Last week, Merrill Lynch analysts pointed out that the only real drag on this thesis is valuations: Earnings multiples are higher for military contractors today than at the start of any other multiyear defense upswing. Yet, Merrill researchers said they believe there is room for further expansion because of low inflation and interest rates, high public approval for spending and the lack of other themes for growth- and momentum-oriented investors to play. In time, Merrill concludes, defense stocks' valuations will return to their historical mean, and prices will suffer. Just not yet.

You can participate in the sector without overpaying by focusing on small-cap subcontractors that are still relatively inexpensive. To my choices of four large-cap defense names two weeks ago, I will add Ducommun(DCO Quote), which makes a variety of assemblies and components and does chemical milling for military and space aircraft. The company's stock is trading near a new high in the $15-$16 range, but if trends stay positive, it should be able to reach $25 over the next two years.

Ducommun's revenue, earnings and cash-flow trends are all positive. Its modest debt is being paid down, and valuation is pretty low; the trailing price-to-earnings ratio is 10.2, the price-to-sales ratio is 0.6, and price-to-book is 1.3, all about half the levels of peers. The stock is lightly covered by Wall Street analysts, but recent ownership reports show that mutual fund complexes Fidelity, Neuberger Berman and Royce control about 27% of the shares. A private family trust, Clark Estates, owns about 16.3% and the founding Ducommun family owns about 8.5%. These should be fairly stable holders.

Peter Arment, an analyst at JSA Research in Rhode Island, recommended Ducommun as a deep-value aerospace play at $10 in February for a three-year cycle in which its C-17 and F-18 business grows in the near term and its commercial business recovers in the long term. The current price looks overextended, but I'll put it in the Supermodels watch portfolio if shares return to around $13 or $14.

Most Wanted Stocks

Twelve of the 20 stocks are in the hard-hit technology or telecom groups, showing that even after all the talk of diversification of the past couple of years, private investors are still putting more than half their eggs into a single broken basket.

Which have the most promise? After three years of churn, it looks like ExxonMobil(XOM Quote) is getting ready to challenge its all-time high -- a process that Johnson & Johnson(JNJ Quote) went through as well, before breaking out to the upside in September. (Johnny John is the only one of these trading at new highs today.) In contrast, Merck(MRK Quote) is at the bottom of its three-year trading range, as are Verizon (VZ Quote) and IBM(IBM Quote).

If I had to place a bet on which of these will have the least volatile move up over the rest of the year, I'd put my money on Exxon and Merck. Anthony Kolton, head of MarketHistory.com, said his pattern-recognition research makes him a bull on Tyco International(TYC Quote); he thinks it will go to the $50s. Terry Bedford, a hedge-fund manager and newsletter publisher who's a veteran of our Strategy Lab, prefers Merck, AT&T Wireless(AWE Quote) and EMC(EMC Quote), declaring that the tech and telecom declines are "overdone."