Investors' fears that a bear market will return (and linger) has made for some bargains - and this group should thrive even if inflation returns.

Opportunity in growth stocks

    Despite a gain of more than 10% in the S&P 500 over the past three months, there's still a real buying opportunity in growth stocks: Our 10 best for 2011 are expected to bolster their profits an average of 61% next year -- vs. 14% for the S&P -- and yet they trade at an average 12 times next year's earnings, vs. 13 times for the S&P.

    Our selections this year are slanted toward commodities. Exposure to oil, chemicals, and fertilizer should provide protection against a falling dollar or an outbreak of a 1970s-style rise in inflation, which we think is a bigger threat than a double-dip recession. (We've also made some contrarian selections, including one housing-related stock.)

Mosaic

Market cap: $30.2 billion

2009 Revenue: $10 billion

P/E ratio: 15.4

Dividend yield: 0.3%

Ticker: MOS

    As corn goes, so go the makers of fertilizer. That's good news for Mosaic, whose stock has had an 89% correlation with corn prices (if 100% means mirroring them exactly) during the past five years, according to SIG Susquehanna agriculture analyst Don Carson. The price of corn has jumped 25% over the last 12 months, and inventories are at their lowest since 1995. The reason: Heavy rains and scorching heat caused the2010 harvest to decline 4% from 2009 -- even as demand rose, with ethanol now consuming 41% of the U.S. corn crop and growing wealth in developing countries leading to increased food consumption.

    Mosaic is up only 11% for the year, which means it has some catching up to do. And with analysts expecting a 48% earnings rise in 2011, the stock (which trades at 15.4 times those estimated profits) seems primed to flourish.

    Mosaic enjoys other catalysts for greater sales of its main fertilizer products, phosphate and potash. According to a recent Merrill Lynch report, China -- which accounts for 20% of phosphate exports -- may soon restrict its sale outside that country, creating potential opportunity for Mosaic to increase its market share elsewhere in the world. Meanwhile BHP Billiton's failed bid to buy Potash Corp. of Saskatchewan and the acquisition of Potash One by German fertilizer company K S Aktiengesellschaft underscore potash's statusas "a commodity you want to be invested in," says Jennifer Dowty, portfolio manager of the John Hancock Global Agribusiness Fund, which has a large position in Mosaic.

    Because the cost of building a potash mine can run into the billions, supply tends to lag well behind demand. Potash prices have tripled since 2004, and the International Fertilizer Association is expecting demand to grow 4.5% a year in coming years. Such fundamentals validate Mosaic's decision four years ago to invest heavily in expanding existing mines in the U.S. and Canada. Mosaic's potash production capacity has grown 10% since 2006 and is expected to increase another 60% between now and 2020. And as it rises, the company's stock seems likely to follow.

Agrium

Market cap: $12.6 billion

2009 Revenue: $9.1 billion

P/E ratio: 11.8

Dividend yield: 0.1%

Ticker: AGU

    The basic argument for Agrium is similar to Mosaic's: Increased production of biofuels combined with rising global food demand means more need for fertilizer. But with Agrium that's only half the story.

    Natural gas represents 80% of the cost of manufacturing Agrium's primary product, nitrogen fertilizer -- and the price of natural gas has fallen 50% since 2008. With U.S. gas production rising because of massive, recently exploited "shale gas" fields in Louisiana, Pennsylvania, and Texas, the International Energy Agency expects a gas "glut" to further depress prices in 2011.

    Agrium's costs are dropping -- but that isn't the case for many of its competitors. Natural gas is difficult to transport, so new supplies in North America don't have much impact on prices elsewhere. "That gives Agrium a real competitive advantage," says mutual fund manager David Jordan, whose Agrium shares are among the largest positions in his Tributary Growth Opportunities Fund. Agrium's competitors in Eastern Europe are paying prices twice as high. Indeed, according to a Citigroup report on shale gas and its impact on the chemical industry, Agrium is the best positioned of all major fertilizer companies to benefit from the falling price of natural gas.

    Agrium is not only a manufacturer of fertilizer but a retailer of it as well, as the company operates a 1,200-location chain of farm-product stores in six countries. This, says Richard Kelertas, an ag sector analyst at Canada's Dundee Securities (Agrium is headquartered in Calgary), allows the company to capture more of the spread between falling production costs and rising retail prices. "It's also a stable business with better margins," Kelertas says, noting that customers are buying not just products but services. "If the farmer is spending a lot of money on specialty seeds and fertilizers, he's not going to want to have inefficient application systems."

    Agrium's earnings are on pace to jump 60% in 2010, and analysts are expecting another 44% bump next year -- giving Agrium's stock a forward P/E of 11.8.

Dow

Market cap: $36.1 billion

2009 Revenue: $45 billion

P/E ratio: 12.8

Dividend yield: 1.9%

Ticker: DOW

    Cheap natural-gas prices are also a boon for Dow Chemical, which uses a key gas byproduct to make ethylene, a building block for the chemicals used to make plastic, rubber, paint, pharmaceuticals, detergents, and countless other products. "They've gone from being in the 80th percentile in terms of cost of production to the 20th percentile," says fund manager Tom Marsico, who counts Dow as a top 10 holding in his Marsico Focus and Marsico Growth funds.

    Dow's business mix is improving too. In 2009, Dow acquired Rohm & Haas, a maker of specialty chemicals used heavily by the tech industry. The deal, which was announced just before the financial crisis began to unfold, got off to a rough start: Kuwait pulled out of a joint venture that was supposed to provide part of the financing. Forced to finance the $19 billion purchase on its own, Dow's stock took a beating from which it still hasn't fully recovered.

    Nevertheless, by helping Dow broaden its portfolio -- which now includes chemicals used to make LED lighting, semiconductors, solar panels, and screens for TVs and smartphones -- Rohm & Haas has not only boosted Dow's earnings but also helped make them less cyclical. (As a bonus, Marsico thinks Dow may be on the verge of collecting a billion-dollar settlement from Kuwait, ending a dispute over the Rohm & Haas financing.)

    Dow is also making hay in its agrosciences division; boosted by new Smartstax hybrid corn seeds that Dow co-developed with Monsanto, the division's operating profits are on pace to rise 14% in 2010 and another 16% next year, according to Credit Suisse analyst John McNulty.

    Companywide, Dow's gross margins have improved from 13% to 19% over the past two years. Long-term debt has been pared by $4 billion. And analysts expect 2011 earnings to be up 32% -- on the heels of a 212% earnings improvement this year. (Granted, 2009 was a disaster.) Best of all, Dow's stock isn't priced to reflect the growth company it has become. The share's forward P/E is just 12.8. Says Marsico: "This is now a stock with a real long-term tailwind."