John Rogers, CEO of Chicago-based Ariel Capital Management and long time Forbes magazine columnist, says that stocks have a margin of safety versus bonds at the current time. In his latest column, Rogers provides past historical examples, both in 1974 and 1987, where the earnings yield on equities (i.e. the inverse of the P/E ratio or the expected return on stocks given their earnings) was superior to that of bonds. According to Rogers, had you put $100 in stocks at in the 1974 bottom where the earnings yield was 14% you would have generated a return of 16% annually over the preceding ten years, whereas in 1987 when the earnings yield was 7% you would have gained 19% annually. In both instances the earnings yield on stocks was far greater than the yield on bonds, and stock went on to produce very solid returns. To see the historical earnings yield of the S&P going back to 1960, click here.

So, “where are we today?,” asks Rogers. “As of Oct. 31 the S&P was trading at 12 times trailing earnings, while three-month Treasurys are yielding 0.4% and ten-year ones 4%. A stock portfolio thus yields earnings of 8%, double what you get on the T bond. Because people have become very risk averse, many think that’s not a sufficient margin of safety, but it surely is to me.

The manager also offers up a few investment ideas as well. He’s bullish on Nordstrom (JWN), Anixter International (AXE) and Jones Lang LaSalle (JLL).