Get ready for a bouncy stock market

So what should you do? Try to use the volatility rather than letting it use you.

Unless you're an experienced trader, and I'll readily admit I'm not, I don't think you stand a chance of timing the quick ins and outs of this market in order to make a profit. The trends in either direction are just too short to be worth much to most of us.

Instead, I recommend sticking to your long-term view of the market -- whatever that is -- and using many ups and downs of this volatile period to upgrade your portfolio.

Growth stocks -- on the dips

Let me use Jubak's Picks to give you a concrete example of what I mean by that.

My goal during these volatile weeks and months is to use any buying opportunities offered by a quick market plunge to add more growth stocks to the Jubak's Picks portfolio. (If you have a different view of the market, you'll come up with a different goal, of course.)

But I also don't want to fall into the common buy-on-the-dip pitfall of buying when prices are lower only to see them go lower still. Besides the volatility in this market caused by worries over interest rates and the value of assets linked to subprime mortgages, I know we're headed into the toughest period of the year for stocks. So whatever buying I'll do in July or early August, by selling existing positions I'll try to keep my cash levels at something like the 15% level that I had in Jubak's Picks at the end of June.

Let me give you three growth-stock suggestions for you to consider adding to your portfolio. I'm going to add one of these names to Jubak's Picks now and look for opportunities to add the others -- and more growth stocks that my research turns up in the next few weeks -- to the portfolio as volatility permits.

Expeditors International of Washington (EXPD, news, msgs) is a growth blue chip that has stumbled and now looks on the way to a recovery -- a very big recovery if economic growth picks up in the second half. As of July 6, the stock was down about 15% from its October 2006 high, and it's been trapped in a downtrend since last fall.

The stock has suffered from investor expectations that slow economic growth in the United States would produce lower freight volumes and lower revenue for global freight companies such as Expeditors International. Year-to-year revenue growth indeed slowed in the fiscal first quarter of 2007 to 9%. That's not bad growth, but not what investors expect from a company that has grown revenue by close to 20% a year, on average, for the past five years.

But the trend looks set to reverse in upcoming quarters. (Reflecting this, the company's StockScouter rating has climbed to 7 from 4 in the past three months.) Air- and ocean-freight revenues are likely to rise 14% in 2007, according to Standard & Poor's, with a 16% jump in operating earnings. The stock is never truly cheap, with a price-earnings ratio that has ranged from 24 to 55 over the past five years. But at 33 times estimated 2007 earnings per share, the current price is a good entry point. I'm adding this one to Jubak's Picks with this column.

Alvarion (ALVR, news, msgs) is one I'd like to pick up on a 5% dip so that my purchase price would be closer to $9 than to the $10 level where it closed July 6. With a volatile period for technology due to set in after mid-July, I think I'll get that chance. A bargain is only a bargain, of course, if the stock is one that you want to own.

The company is a leading player in the market for infrastructure for wireless broadband networks with more than 180 commercial WiMax networks deployed and more than 220 in trial, according to investment bank C.E. Unterberg, Towbin. The stock has been struggling as pricing pressures have taken a bite out of initial growth, but it looks like 2007 revenue will grow fast enough to offset the problem. Revenue growth will hit 15% to 20% this year -- quite a rebound from a 7% decline in 2006 -- and is projected at 30% in 2008.

Itron (ITRI, news, msgs) is one I've been trying to buy at a good price for most of 2007, and it keeps running away from me. I'd like to get the stock on any dip to $65 to $71 from its current price near $80, but I may just have to bite the bullet on this one. The amazing thing about Itron's stock performance this year is that 2007 was supposed to be a transitional year as the company positioned itself to win big contracts in 2008 and beyond for the emerging "smart" electricity grid. Energy prices are now high enough and supply constrained enough that utilities are finally starting to fork out the big bucks to build a grid with the ability to communicate usage patterns and to set pricing as demand fluctuates. Itron has a 50% market share in some of the key parts of the "intelligent" metering part of that story.

With those three stocks lined up, I can't say I'm looking forward to market volatility this summer. Frankly, it always puts my nerves on edge. But at least I'll be prepared for it.

Updates to Jubak's Picks

Buy Expeditors International of Washington (EXPD, news, msgs). Investor expectations have delivered a double whammy to shares of Expeditors International. First, investors thought that extremely strong earnings growth in the first half of 2006 -- close to 33% year over year -- was sustainable rather than a temporary peak and were disappointed when growth slowed in the second half of the year. Second, investors expected that slower economic growth in the United States would produce lower freight volumes and lower revenue for global freight companies such as Expeditors International. Year-to-year revenue growth indeed slowed in the fiscal first quarter of 2007, to 9%. But now growth is about to pick up again, and lowered expectations have made the stock, at 33 times estimated 2007 earnings, about as cheap as it ever gets. I'm adding these shares to Jubak's Picks in order to increase the portfolio's exposure to better than expected growth in the U.S. economy in the second half of the year. As of July 10, I'm setting a target price of $56 a share by June 2008. (Full disclosure: I will buy shares of Expeditors International for my personal portfolio three days after this column is posted.)

Sell Procter & Gamble (PG, news, msgs). I'm selling the Jubak's Picks position in Procter & Gamble in order to shift the portfolio a little more toward growth and away from a defensive posture for the second half of 2007. With the economy looking stronger than I expected way back in January, I'm going to play more offense with my stock picks now while keeping my cash position in the portfolio high to take advantage of an increase in stock market volatility. Long-term investors should ignore this trade and just hold their positions in Procter & Gamble. I'm selling with a 2% total return (including dividends) since I added the stock to Jubak's Picks on Sept. 9, 2006.

Second-quarter 2007 performance for Jubak's Picks

The volatility is rising. June saw the Dow Jones Industrial Average ($INDU) fall or climb by 100 points or more on seven different days as troubles in the bond market whipsawed stocks. It was hard to find a safe haven, too, because rising bond yields (and seasonal weakness) put downward pressure on traditional hedges such as gold. At the same time, worries about slowing growth in the U.S. economy meant investors were in a mood to punish any growth stock that delivered less than expected growth. All in all, not a great quarter for Jubak's Picks -- but not a disaster, either. My portfolio returned 5.04% for the quarter versus an 8.5% return for the Dow Jones industrials, a 5.8% return for the Standard & Poor's 500 Index ($INX) and a 7.5% gain for the Nasdaq Composite Index ($COMPX). For the first half of 2007, Jubak's Picks shows a 15.6% return versus an 8% return for the Dow industrials, 6% for the S&P 500 and 8% for the Nasdaq Composite.

Continued: It could have been better

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