"We are in an normal business downturn, but business cycles self-correct," said Ron Muhlenkamp, president of Muhlenkamp Funds, speaking at a New York press briefing. Muhlenkamp is bullish, because he feels the Fed will lower interest rates until the economy rebounds, and based on historic patterns, "consumer fears generally dissipate after six months."
Muhlenkamp feels the economy could lose more ground, so he's buying consumer cyclical companies. Right now, he calls housing the "only attractive sector." He currently owns Citigroup (C
) and Cement de Mexico.
George Schupp, manager of First American Bond IMMDEX Fund (FRBMX
), agrees that the Fed will aggressively cut rates to jump-start the economy. Historically, the Fed has brought interest rates down to the rate of inflation during downturns, so Schupp expects a cut of 25 basis points next month and possibly another 25 basis points in December. When the economy rebounds next year, Schupp predicts the Fed will raise rates.
The market could fall further this year before the economy improves, according to Bill D'Alonzo, co-manager of Brandywine Fund (BRWIX
), who feels the price-earnings ratio of the S&P 500 will fall further. Based on this defensive outlook, D'Alonzo currently favors health care (40% to 50% weighting), energy, and grocery stores as his largest sectors. His picks include Alcoa (AA
) and General Electric (GE
Bob Millen, manager of Jensen Portfolio (JENSX
), looks beyond current market and economic conditions to focus on companies profitable in all environments. Despite this view, Millen believes, "now is a good time to buy cyclicals," because they are hardest hit in downturns. Millen concentrates on companies with 15% annual returns on equity over the last ten years. His long-term plays include Pfizer (PFE
), for its strong drug pipeline, and Stryker Corp. (SYK
) for its steady earnings stream.