Where's That Market Correction We've Been Waiting For?

A month ago, I tackled the challenge of figuring out whether the market would be able to continue shooting upward after a fast and furious two-month rally that even Vin Diesel would be proud of. My conclusion was a resounding "probably not."

The realities of a yet-fragile economy and corporate earnings that will probably be wobbly for another couple of years suggested to me that the market would likely shake off some of its recent gains before heading back up again. Yet here we are a month later, and the market is actually up another 3%. What gives?

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One obvious possibility is that I was flat-out wrong. Maybe the green shoots that everyone keeps talking about have already put down strong roots, and the economy and earnings picture are better than I expected.

If that is the case, then we should start to see the fundamentals improving for companies such as Las Vegas Sands (NYSE:LVS) and Cemex (NYSE:CX), both of which saw their stocks make huge leaps in the past few months.

However, I think the more likely scenario is that there are a heck of a lot of investors who came to the same conclusion that I did -- that is, that the market was gearing up for another correction, and so better prices were on the way.

With so many people sitting with money on the sidelines and waiting for that correction to come, it's very likely that some are getting impatient and starting to worry that the correction isn't coming. That's bringing money back into the market, which will make more folks think that the uptrend will continue, which will bring more money into the market.

Like a middle school food fight, the situation is self-perpetuating.

Or maybe I was right after all
There's always the chance I'm jumping the gun here and getting a little hopped up on the amphetamine of making market-timing calls. My original equation -- that the current market multiples plus the lackluster earnings outlook equals a market pullback -- could still be right on target. Perhaps we're just days away from the beginning of that correction that we've all been champing at the bit for.

But perhaps you're now totally confused. So far I've told you that maybe I was wrong last month and stocks can continue to go up over the next few months. But, then again, maybe I was right and stocks are getting ready to spend the next few months going down.

Some help I've been.

Well, actually ...
If you've already started penning some hate mail to me for wasting your time, just hold on for one quick minute. Maybe we can spin my cloudy crystal ball into something useful.

Let's check the facts here. Market multiples aren't so high that they're downright scary, nor are they so low that we should all be mortgaging our houses to buy stocks. The economy isn't in great shape, but I think most of us can agree that we've knocked the complete-economic-collapse scenario off the table.

Considering all of that, what if we just ignored the potential market fluctuations over the next few months? I know it's difficult -- particularly considering the market's crazy volatility of late -- but what if we just took it back to the basics and looked for some good companies that are selling for attractive prices?

It sounds too simple, right? Well, maybe it's just simple enough to work.

Here are a few stocks that I've got my eye on. All of these companies have their interest expenses well covered by their cash flows, so we don't have to worry about them going belly-up in the next few months; they pay dividends; they're selling at reasonable valuations; and they have compelling businesses.

Sources: Capital IQ, a division of Standard & Poor's, and Yahoo! Finance. P/E = price-to-earnings ratio. EBTIDA = Earnings before interest, taxes, depreciation, and amortization; commonly used as a measure of cash flow. NM = not meaningful. Chevron's EBITDA-to-interest ratio is greater than 1,000.

The big gains to be had from the stocks listed above are going to come from the growth in profits and the compounding of dividends over years, if not decades. The fluctuations that will take place over the next few months are unlikely to be more than a footnote in history -- if that.

So if I've frustrated your efforts to figure out whether the market will be up or down in the next 12 days, 12 weeks, or 12 months, I apologize. However, hopefully I've provided a reminder that when you're looking for the big gains that can come with long-term investing, the next few months often don't matter a whole heck of a lot.

Further Foolishness:

• Did Tom Gardner really say that long-term investing doesn't work?
• Yes, You Can Still Find Cheap Stocks
• It's Finally Time to Buy These Stocks
• Do Blue-Chip Penny Stocks Exist?