Value investor says earnings recession is coming

Traders work on the floor of the New York Stock Exchange.
Brendan McDermid | Reuters
Traders work on the floor of the New York Stock Exchange.

Delphi Management founder Scott Black says he fears an earnings recession may be on the way.

"I wouldn't be surprised if corporate earnings would be negative for the year," said Black, noting that S&P 500 earnings declined 5.6 percent in the first quarter, while sales dropped 1.8 percent.

The value investor, who uses a "bottoms up" approach, says the S&P 500 is already "fully valued" at 18 times this year's earnings, while small- and mid-cap companies are "overvalued," trading at 22.5 times and 21.7 times, respectively.

Here are changes Black is making for the CNBC "Squawk Box" Portfolio Challenge.