James L. Dailey CIO, TEAM Financial & Senior Portfolio Manager, TEAM Asset Strategy

Comments & Outlook

In the longer term, we expect growth to be significantly below what was normal in the 1980s and ‘90s. Inflation volatility will pick up, meaning that the era of four-to-five year expansions we enjoyed in the ‘80s and ‘90s are likely to contract to one to three years. These compressed cycles will make it more difficult for investors. It’s too early to call for another recession, but the risks of another downturn will increase significantly as we head into 2011. As the economy slows, it’ll be much more vulnerable to a range of potential shocks, including higher commodity prices, a continued or renewed mortgage crisis, or the sovereign debt crisis unfolding in Europe.

Recommended Strategy

Precious metals offer strong growth potential. On a long-term basis, the structural supply-and-demand situation for many commodities is still positive because of the growing middle class in the emerging markets. On a monetary side, commodities provide hard asset protection against what we see regard as a competitive devaluation in most of the major currencies.

Hard assets allow investors to own something that politicians can’t print, so there’s an added value of insurance. Precious metals and agriculture are the two plays with the most upside potential over the next one to three years.

What to Buy Now

In the precious metals space, Newmont Mining Corp (NYSE: NEM) is a solid play. Yamana Gold (NYSE: AUY) represents an attractive way to gain exposure to the world’s most prominent hard asset.

In the agriculture space, consider Intrepid Potash (NYSE: IPI), a fertilizer company with no debt. D

iana Shipping (NYSE: DSX), a dry bulk shipper, is a smallish company, but it’s one of the largest among its peers. The company has no debt and will benefit from higher commodity prices going forward. High-quality mega-cap stocks still provide reasonable value. In the energy space, we like Exxon Mobil (NYSE: XOM).

Verizon Communications (NYSE: VZ) and AT&T (NYSE: T) have strong balance sheets and franchises and pay significant dividends. Both names trade at relatively reasonable valuations, and we see the potential for high single-digit to low double-digit returns over the next three to five years.

John Schneider Portfolio Manager, Highland All Cap Equity Value

Comments and Outlook

The overall stock market is fairly cheap, and many sectors are extraordinarily cheap.

Recommended Strategy

We don’t want to create barriers where they’re not needed. The flexibility to take advantage of any opportunities is important. Value investing is important because it’s the only strategy that actually works. We focus on price-to-normalized earnings because it isn’t helpful to compare depressed earnings from two quarters ago to earnings at their peak.

What to Buy Now

We’re looking at banks, homebuilders and autos. Banks have underperformed the S&P 500 for six consecutive years; that the group is up strongly year to date doesn’t mean banks aren’t extraordinarily cheap.

We’ve had the worst of all worlds for these industries, but now banks have the strongest capital position ever. And with borrowing costs so low, net interest margins are growing. Credit losses also appear to have peaked.

Loan growth likely will remain weak for the rest of this year, but that’s something that lags the economy, so we think that will improve going into next year.

Although too many homes were built earlier in the decade, the long-term demand for new homes in the US is 1.65 million annually. Last year only about a third of that was built, so a lot of that excess inventory has been worked off.

And it doesn’t look as though the construction outfits are planning a building boom in the next 12 months; come next spring there may be a shortage of homes—just as pent-up demand starts to be released.

A lot of the homebuilders have strong balance sheets, so they’ll be well positioned to make substantial investments in land when the time comes.

The auto industry, from manufacturers to parts suppliers, is attractive for a lot of the same reasons.

If you look at the long-term secular demand for automobiles in North America, there’s a need for about 16 million new automobiles annually. Only 10 million new cars were produced last year.

Now that many of the industry players have downsized their operations and can be profitable producing fewer units per year, they’ll really benefit from a pickup in demand.