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The

Dow Jones Industrial Average

has been around a very long time, but it still can't get any respect.

Criticized for being too small to represent the stock market with just 30 names, or too old-fashioned with a lot of rusty manufacturers and cranky banks, it has been marginalized in recent years by snobs who prefer the broader

S&P 500

as a market benchmark.

And so it is fairly amusing that, despite its many woes, the Dow has beaten the pants off the S&P 500 -- and every other market proxy -- since 2000. If we look back to, say, 1985, the Dow is still the champ.

To be specific, with dividends reinvested, the Dow is up 733% since 1985 and down 7% since 2000. The S&P 500 is up 570% and down 18% in those two spans, while the

Nasdaq Composite

is up 649% and down an even 50%.

Ignoring the Fads

One of the beauties of the Dow is that its creators are loath to change it much to suit the whims of the day. Unlike the S&P 500, which has regularly booted its members to make way for flavors of the month with little ceremony or rationale, the Dow rarely shakes up its party. And if you look back a few years, you can understand why.

On Nov. 1, 1999, Dow Jones editors thought they were being very clever when they added

Microsoft

(MSFT) - Get Report

,

SBC Communications

( SBC),

Intel

(INTC) - Get Report

and

Home Depot

(HD) - Get Report

to the Dow. Since then, the four have sunk 36%, 42%, 43% and 20%, respectively.

Meanwhile, two of the stocks that were ousted to make room --

Sears Roebuck

(S) - Get Report

and

ChevronTexaco

(CVX) - Get Report

-- are up 104% and 60%, respectively. The other company removed at that time that's still publicly traded,

Goodyear Tire and Rubber

(GT) - Get Report

, is down 55%.

More recently, on April 7, 2004, the managers of the Dow replaced

International Paper

(IP) - Get Report

,

Eastman Kodak

( EK) and

AT&T

(T) - Get Report

with

Pfizer

(PFE) - Get Report

,

Verizon

(VZ) - Get Report

and

American International Group

(AIG) - Get Report

. That didn't work out so well, either. The exiting stocks have averaged a gain of 13.6%, led by a 37% advance in Eastman Kodak, while the arriving stocks have averaged a loss of 13.3%, led by a 31% decline of Pfizer. Whoops.

At this time of unusual uncertainty in the market, I'd like to step in to save the Dow from itself. And while I'm at it, let's review a method of playing the elder index I first introduced six months ago that involves paring back the laggards from the list and focusing on its success stories.

From an investment point of view, after all, we're usually better off choosing stocks that represent nothing so esoteric as the potential for the greatest earnings, revenue and price-appreciation growth over a reasonable time period -- say, six months.

An Even Better Dow

The last time I proposed using the Dow as a starter kit for a stock portfolio was, conveniently, six months ago. In an

Aug. 19 column, I employed MSN's StockScouter system to cut the Dow 30 down to a list of seven potential outperformers.

And succeed they did. As a group, my Dow 7 has advanced 17.4% since Aug. 19, about two-and-a-half-times better than the 7% gain in the Dow 30. The roster was

Altria Group

(MO) - Get Report

, +41%;

McDonald's

(MCD) - Get Report

, +26%;

ExxonMobil

(XOM) - Get Report

, +23%;

Johnson & Johnson

(JNJ) - Get Report

, +18%;

Citigroup

(C) - Get Report

, +11%,

Honeywell

(HON) - Get Report

, +7%; and

Procter & Gamble

(PG) - Get Report

, -4%.

My method of winnowing down the Dow 30 stocks now will be the same, except this time I'll include the two other major Dow indices: the 20-stock Dow Jones Transportation Index and the 15-member Dow Jones Utilities Index. I screened the MSN Money database only for the names in each group that were rated 8 or better by StockScouter, then removed stocks that appeared to be in long-term downtrends. Using data through the end of last week, 19 of these 65 stocks made the first cut. I then threw out the only stock with weak daily and weekly charts -- American International Group -- to arrive at the following 18-name list.

The six from the Dow 30 are, through pure coincidence, a nicely diversified group all by themselves, with one retailer, one drugmaker, one tobacco roller, one technology company, one defense contractor and one energy producer. Can't beat that.

The six from the transports index include two pure truckers, two railroads and two freight-forwarders. The six from the utilities index are primarily diversified via geography. There is one each from Texas, California, Illinois, New Jersey, Ohio and Oklahoma.

Whether the broad market succeeds or trades lower for the rest of the year, my bet is that these 18 will outperform the 30 Dow industrials as well as the other major market indices. If you'd like to propose another subset of the Dow 65 comprised of 20 stocks or less, please email them to me at

jon.markman@gmail.com along with your rationale, and write "Dow 65" in your email's subject line. I'll track them over the next six months.

Jon D. Markman is publisher of StockTactics Advisor, an independent weekly investment newsletter, as well as senior strategist and portfolio manager at Pinnacle Investment Advisors. At the time of publication, he held positions in the following stocks mentioned in this column: Yellow Roadway, Microsoft, Home Depot, Expeditors International and ExxonMobil. While he cannot provide personalized investment advice or recommendations, he welcomes column critiques and comments at

jon.markman@gmail.com; please write COMMENT in the subject line.