Just Ahead: Dow 40,000?

Naturally, most investors would love to see a renewed bull market, as it would run counter to the dour view that a cyclical bear is just around the bend. But the forecast gets a little more interesting when you begin to apply it to individual stocks. For in order for the Dow Industrials to double, either virtually all of those 30 stocks would have to double their earnings, or investors would need to decide that their price/earnings multiples should be twice as high as they are now.

Strangely enough, several of the Dow stocks won't get to their all-time highs even if they double.

Pharmaceutical giant Merck(MRK Quote), for instance, could shoot 100% higher and only get halfway back to its glory days. Chip goliath Intel(INTC Quote) could triple and still not get back to its 2000 high. And you can go down the line with the list to find similar examples, including Verizon(VZ Quote), SBC Communications(SBC Quote) and Walt Disney(DIS Quote).

Riding the Next Bull

Indeed, considering the walking wounded in the Dow, it's impressive that the index is only trading about 12% down from its all-time peak of 11,698, set in late 1999. You can certainly see that if oil prices moderated and investor mood began to lift, the venerable measure of the market could certainly approach and exceed its old highs while its sleepier components were just barely getting off the floor.

After that, it wouldn't exactly take much imagination to see a 50% move up to 15,000, as it would only require an advance in a stock like Intel, for instance, to $34.50 from its current perch around $23. It was there as recently as November 2003. Merck would only have to get to $38.77, where it traded only a year ago.

If the optimists' vision were to come into play, it would take a lot of investors off guard. Possibly the best way to guard against the chance that the Dow might take off without you would be to devote 5% to 10% of your funds, let's say, to a portfolio containing Dow industrials, transports and utilities that are considered the most favorable today under our StockScouter system. That way, you're probably going to be in great shape for a bull run, and you're unlikely to get badly hurt -- at least on a relative basis -- if bears gain firm control instead.

The last time I put together a similar list was Feb. 4, in a column titled "A Better Index: The Diversified Dow 18." That group of stocks is up 4.6% since then, vs. a 4% decline in the Dow Jones Industrials. My picks were led by a 39% gain in TXU(TXU Quote), a 12.5% gain in Norfolk Southern(NSC Quote) and a 7% gain in Altria Group(MO Quote).

Here are StockScouter's top choices now among the Dow Jones Industrials, Utilities and Transportation indices to consider, just in case the optimists -- against all odds -- are right this time. As you look down the last column, keep in mind that it takes a 100% move to get back a decline of 50%.

The StockScouter Dow 15
Name	DJ Index	SS rating	10/10 Close	YTD Chg.	% Chg. 5y high
Home Depot	DJ Industrials	8	$38.02	-11.6	-46%
Coca-Cola	DJ Industrials	8	41.98	1.3	-37
Wal-Mart Stores	DJ Industrials	8	44.54	-16.6	-35
Exxon Mobil	DJ Industrials	9	58.50	16.3	-11
United Technologies	DJ Industrials	8	50.00	-3	-8
Caterpillar	DJ Industrials	8	55.57	16.1	-7
GATX	DJ Transports	9	37.74	27.8	-25
FedEx	DJ Transports	9	88.04	-11.3	-14
CSX	DJ Transports	9	44.39	12.5	-7
Burlington Northern Santa Fe	DJ Transports	9	58.51	24.5	-3
CNF	DJ Transports	8	51.82	2.8	-3
CenterPoint Energy	DJ Utilities	8	13.65	22.9	-73
TXU	DJ Utilities	9	104.23	63.6	-11
Dominion Resources	DJ Utilities	8	78.85	18.8	-9
FirstEnergy	DJ Utilities	9	49.82	28.5	-7
Source: MSN Money