Is a Big Drop on Its Way?

Should we be worried? With the Dow pulling back below the 14,000 mark and the term "correction" on everyone's mind, that's the million-dollar question.

The Russell Investment Group's quarterly Investment Manager Outlook set out to get the pros' answers to that question. The survey of 353 top Wall Street money managers asks questions relating to future market performance, cycles, and the current state of the economy. While reassuring at first glance, the survey conveyed a potentially disturbing trend toward bearish sentiment.

In the survey, 17% of managers believe the market has become overvalued. Now, that might not seem like an alarming percentage, considering that the remaining 83% of managers think the market is either fairly valued or undervalued. But consider: 17% is a new high for the three-year survey, and it's double that of the 8% exactly one year ago. While it's a minority, it's growing -- a trend that investors should at least note.

So is the market overvalued?
While the survey data is interesting from a macro perspective, we've said it before -- Foolish investors like us shouldn't get wrapped up in worrying about what "the market" will do next week. We should instead be focused on a long-term approach to investing. That is, when you buy stocks, you shouldn't be interested in short-term fluctuations caused by news headlines or government reports. You should be interested in the quality of the underlying business and the price at which it's trading, period.

That's particularly true in an environment that's starting to be called "overvalued." Because when the momentum runs out, the stocks that have gotten ahead of themselves will fall the hardest.

So which stocks haven't gotten ahead of themselves? According to this same group of money managers, the sector ripe for bargains is large-cap growth.

The whys and wherefores
As a group, large-cap growth stocks have lagged other market segments over the past few years, while small-company stocks and value stocks have flourished. But, as The Washington Post reported, "Generally, smaller companies benefit during the early stages of an economic cycle, and larger, diversified companies are better positioned to weather downturns."

So, then, what makes a compelling large-cap growth stock? It needs to be large, as in a market cap of $10 billion or more. It needs to have a strong history of growth as well as good prospects -- at least in the double digits -- for the future. And it needs to be priced attractively relative to that growth -- a PEG ratio of 1.0 or less, for example.

Here are few companies that meet those characteristics.

Take it from here
This isn't a "buy" list; it's simply a starting point for stocks that pack potential. Don't forget, though, that the most important thing you can do to make sure you build a fortune in common stocks is, simply:

Keep buying stocks.

But do so wisely. Keep an eye on valuations, and always keep cash on hand to be able to pounce when the market temporarily turns down -- as it will.

That's what Fool co-founders David and Tom Gardner do at their Motley Fool Stock Advisor investing service. They started making money in the throes of 2002's bear market and kept it through the current bull market. And with good results, too: David and Tom's recommendations have returned an average of 70%, compared with 34% for equal amounts in the S&P 500. Interested in finding out which stocks to start with? Try a no-obligation 30-day free trial, and you'll see their five best buys for new money now. Here's more information.

Blake Fulton doesn't own any shares of companies mentioned above. UnitedHealth is a Motley Fool Stock Advisor and Inside Value recommendation. The Fool's disclosure policy is "so easy a foolish man can do it."