The expert who famously predicted the housing bubble and the 2009 bull market believes that despite lingering fears in the marketplace, stocks could “easily” return double-digit gains this year.

The last time I interviewed investment guru Jim Stack, he was a lonely bull in a bearish world.

It was last August, when stocks appeared to be in a death spiral. On Monday, August 8, the Dow Jones Industrial Average fell nearly 635 points. After rallying 400 the next day, it lost almost 520 on August 10, closing at 10,719.94.

That was 16% below its March 29 peak, and if it wasn’t quite a bear market, it seemed well on its way to becoming one. Much of the rest of the world was already there.

Not so fast, said Stack, president of Stack Investment Management and InvesTech Research. He declared that no recession or bear market was on the horizon. Given Stack’s excellent long-term track record and early predictions of a housing bust and the 2009 bull market, it was worth paying attention.

Read Howard’s previous column on MoneyShow.com about Stack’s prediction the bull would continue.

He also said he was remaining bullish as long as the S&P 500 index stayed above 1100.

Last October 3, the S&P closed at 1099.23. But it took off and closed Tuesday at 1362.21. That’s almost a 24% gain from its lows, and just about back to its recent peak last April 29.

So, now that he’s been vindicated, what does he think?

I caught up with him recently at the World MoneyShow in Orlando, and yes, he still believes we’re in a bull market, though he wouldn’t be surprised to see a correction after stocks’ recent run.

“When you set aside the fear and look at the leading economic indicators and the technical environment, that’s a balance weighted in the investor’s favor,” he told me. “We’re just not seeing the usual warning flags.”

As he did last summer, Stack insists “the underlying economy is doing better than people think.” In fact, he said, “the economy is still expanding,” albeit slowly.

For instance, the four-week moving average of initial claims for unemployment is at its lowest point since 2008.

“There’s not a recession that’s begun with unemployment claims with new lows,” he said, adding that initial claims usually turn up four to six months before a recession begins.

Also, consumer confidence, as measured by the University of Michigan and the Conference Board, has recovered completely from last summer’s debt-ceiling stand-off, he said.

Stack also likes the market’s technical condition.

As of last Friday, we have yet to experience a single trading day in 2012 in which the S&P fell 1%. That’s the first time that’s happened since 1995, Stack said.

Also, the Advance/Decline (A/D) line—which compares the number of advancing stocks with the number of declining stocks—has broken out to new highs ahead of the major indexes, he said.

“This shows an underlying strengthand is one reason why almost all major indexes are very close to matching or exceeding their highs hit in April of last year,” he wrote in the latest issue of InvesTech Research.

NEXT: Sentiment Is Also Bullish

And a proprietary indicator he watches shows a real dearth of leadership on the down side. That usually means good stock market gains in the months ahead, he said.

But you’d be hard pressed to find investors who are licking their chops at that. In fact, says Stack, many retail investors are out of the market or traumatized.

A recent survey by Charles Schwab & Co. found that only a third of investors polled were confident in their ability to make investment decisions. Blame two bear markets over the past 12 years plus 2010’s “flash crash” and the series of crises investors have lived through for that disillusionment.

But “2011 was no more volatile than 2010 and was actually much less volatile than the past two years,” he told me. “Volatility has been in investors’ emotions. What we’ve seen have been extremes of fear.”

Fear of the unknown is most pervasive, especially about Europe, a possible confrontation between Israel and Iran, and the continuing debt crisis in the US.

“We don’t know what’s going to happen with Greece, we don’t know what will happen with Italy,” Stack told me. “We’ve been worried about banking crises in Europe for the last two to three years.”

Brandishing his statistics again, he said US markets have continued to advance during eight of the 13 recessions in Europe over the last 50 years.

And what about a possible attack by Israel against Iran to keep the Islamic Republic from developing nuclear weapons? That would be a problem, he said, especially if Iran tried to close the Strait of Hormuz in retaliation.

It could drive crude prices to $150 a barrel and be “a considerable headwind, because it is pulling discretionary spending out of the consumer’s pocket,” he said. But, he added, “geopolitical events generally do not have a lasting impact on the US economy.”

He thinks Saudi Arabia and other producing countries “will be opening up their spigots because they know the repercussions—the world going into a global recession.”

But there’s a silver lining: In Stack’s view, all that fear has helped keep valuations attractive. The S&P changes hands at about 14x trailing-12-month operating earnings and 15x reported earnings. Since 1960, stocks have traded at over 20x earnings when long-term rates have been less than 3%, he said. By that metric, “one can reasonably argue that the market is undervalued by 10%-30%.”

Stack doesn’t use target prices, but says “we could easily see a double-digit gain in 2012.” That’s pretty typical for presidential election years when incumbents are running for re-election—another reason he’s still bullish.

Read Howard’s analysis of why the election could make 2012 a good year for stocks on MoneyShow.com.

How long will the bull last? Stack won’t name a date, either, but said this bull market is “maturing,” not mature. That means we could be at least a year away from its finale. Since 1932, bull markets have lasted roughly three-and-a-half years, on average, and in two weeks, we’ll celebrate this one’s third birthday.

Stack likes sectors like industrials and materials, which do well midway through a bull market. He particularly likes energy stocks as hedges against a spike in oil prices under a new Persian Gulf crisis.

His favorites: domestic exploration and production companies like Marathon Oil (MRO), ConocoPhillips (COP) and Occidental Petroleum (OXY), whose supply won’t be disrupted by events in the Gulf, he says. For ETF investors, he likes the Energy Select Sector SPDR (XLE)

These all have rallied along with the market and energy prices.

I think this market has made a huge move based largely on anticipation of a deal with Greece. Now, it may sell off a bit, perhaps into the mid-1200s. The Iran situation is a huge wild card that nobody can predict.

But given Stack’s track record, I wouldn’t bet against him for the long run. So, I might use any correction to buy a little more stock or at least hold on for the rest of a bull market that he says ain’t over yet.

Howard R. Gold is editor at large for MoneyShow.com and a columnist for MarketWatch. Follow him on Twitter @howardrgold.

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