Expecting the market to reach new highs and then a correction, value managers are turning to companies with strong cash flows and large dividends, MarketWatch reports.“We could be seeing a correction on the horizon, but our view is that we’re in the early stages of the next long-term leg up in equities markets,” said Andy Engel, co-manager of the Leuthold Asset Allocation Fund. “Stock valuations are high, but historically not at radical levels. We’d have to see stocks fall about 14% in price to realize any real bottom based on historical fundamental valuations for the S&P 500.”
As the market weakens, Engel is concerned about inflation and weaker corporate earnings. He expects large-cap stock prices to come down about 10% to 15% and small-cap prices to fall 30% in upcoming months.
“We’re betting on a soft landing, not a recession. The economy is stronger than investor sentiment might indicate,” said Ron Muhlenkamp, manager of the Muhlenkamp Fund.