O. Mason Hawkins and G. Staley Cates, whose three Longleaf Partners’ funds have handily beaten the market over the past year and the long term, say stocks present a “superior” opportunity at current levels.

“Equities offer a superior opportunity for investors today, particularly compared to fixed income,” Hawkins and Cates write in their latest quarterly letter. The duo says the S&P 500’s earnings yield, based on 2011 projected earnings, is between 9.4% and 10.4%. The EAFE Index, meanwhile, is offering a 9.8% earnings yield. “If earnings grow organically from today’s depressed levels at only 5% per year (a rate that does not require the reinvestment of earnings because of current excess capacity),” they say, “and even if the P/E ratio remains below the long-term average, an investor’s five year average annual return will be in the mid-teens.”

Hawkins and Cates present a chart showing that at bear market lows since 1932, earnings yields have been an average of 2.8 percentage points above Aa2 bond yields. At the beginning of July, the spread was 4.3 percentage points, “or almost twice stocks’ relative attractiveness to bonds at bear market lows,” Hawkins and Cates write. “We have rarely witnessed this much disparity in the benefits of being an owner of a growing coupon versus being a lender to a fixed one.”