Top 10 Turnarounds for 2006, Part 2

This column was originally published on RealMoney on Dec. 8 at 7:18 a.m. EST. It's being republished as a bonus for TheStreet.com readers.

It doesn't make a lot of sense to be bullish right now. The yield curve is as flat as a pancake, and the Federal Reserve appears resolute in its plan to push short-term rates still higher. That means the yield curve will soon invert, a dynamic that has been followed by recession in every instance over the last 100 years, with two exceptions. And in both of those exceptions, a no-growth economy barely skirted a recessionary decline.

While backward-looking governmental statistics show that the economy continues to grow, forward-looking evidence continues to mount that we may be facing a slowdown in the near term. In conversations I've had recently with professionals in the mortgage business, home construction, real estate and new cars, the response is amazingly uniform: A slowdown has already started.

In the face of a potentially difficult economic backdrop, how can a value investor justify taking new equity positions? One reason is stark in its simplicity: because value materially exceeds price. Another reason is that historically, stocks always launch a major rally in the midst of economic turbulence. Over the last 100 years, the equity market has never failed to rally in advance of the end of a recession. In one case, the rally began at the beginning of a recession.

Investors who get in front, who take positions in advance of fundamental improvement, perform better than those who wait for the evidence of a turn. I believe that will be the case for the turnarounds recommended below, the second set of picks for my two-part series, Top 10 Turnarounds for 2006. (Click here to read Part 1.)

Commerce Bank

On an earnings basis, Commerce BancorpCBH is struggling with the worst interest rate environment in many years. Operationally, the business is not struggling at all; the company is growing deposits at well over a 25% annual clip, while taking market share in every region in which it competes.