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. ...