Three Stocks to Survive a Volatile Second Half

What will it be for the second half of 2007? Will economic growth come in stronger than expected and push stock prices to new highs? Or will bond market turmoil send interest rates higher, taking a bite out of stock prices?

Over the next six months, I believe that better-than-expected economic growth will outweigh slowly climbing interest rates and that stocks will finish slightly above current levels.

But buckle your seat belts: Rising volatility will make that modest gain a very bumpy ride. If you're going to stay in stocks for the remainder of 2007, you'd better be prepared for a roller coaster's worth of thrills and chills.

Investors who don't know what's coming could wind up whipsawed by emotion into buying high and selling low -- repeatedly. That's a sure recipe for losing money even as stocks in general climb higher.

What We're Likely to See

Here's what I expect and how to cope with it.

Last month I projected a 12% to 15% return on the major indices for all of 2007. I don't see any reason to change that prediction. The major indices haven't moved appreciably since then, so as of July 5 that would mean a 3% to 6% climb in the Dow Jones Industrial Average for the remainder of 2007, a 2% to 5% increase in the Nasdaq Composite and a 4% to 7% rise in the Standard & Poor's 500. Not great, but better than a poke in the eye with a sharp stick.

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