That annual July debate around baseball, are you buyers or sellers? The Twins made up their minds early this year.

Only two games below .500 in a season that’s 10 weeks old — and more important, a mere five games out of first place in the lackluster AL Central — the Twins declared themselves pennant contenders Saturday by signing a significant free agent to beef up their lineup. Kendrys Morales, a Cuban power hitter who slugged 23 home runs last year for Seattle, has agreed to a contract with the Twins for the remainder of the season, a team source confirmed Saturday.

“We’ve always liked the guy. We know he can hit,” manager Ron Gardenhire said, though he said he was unaware of any upcoming move.

The source, who requested anonymity because the Twins have not officially announced the transaction, said the contract is pending a physical exam — important in his case because of a history of injury. Morales missed most of 2010 and all of 2011 after breaking his ankle, a freak injury suffered during a walk-off celebration while with the Angels.

Contract details have not been disclosed, but — which also confirmed the signing after first reported it — says the deal is worth a prorated share of a $12 million salary, or a little more than $7.5 million.

The move took baseball by surprise — had listed the Brewers, Mariners, Yankees and Rangers as potential landing spots, with the Twins never mentioned — because it’s an aggressive, in-season move by a team not known for them. But power hitting is a critical need for the Twins lineup, and Morales could step right in since the team has no regular designated hitter.

More than anything, however, the move is a demonstration of faith in the current roster, and a signal to fans that, as General Manager Terry Ryan insisted all winter, the Twins aren’t focused solely on a rebuilding project that’s still a few years away.

“We’ve been facing a lot of really good teams, we’ve been competing with them all, and I don’t see why we shouldn’t now,” Gardenhire said. “We feel good about ourselves, I’ve said that all along. This team doesn’t ever feel out of games.”

Nor out of a division race being led by a Detroit team that has scored almost exactly as many runs as the Twins. Minnesota has never been more than three games below .500, or two games above — a so-so record that’s still a big step forward for a team that lost 95 or more games for each of the past three seasons.

“I was excited to hear [about Morales]. I think anybody in the clubhouse is excited any time you make a move for a player like that,” said righthander Kyle Gibson, who pitched seven shutout innings in Saturday’s 8-0 victory over Houston at Target Field. “We feel like we’ve got a good team here. Our starting pitching is starting to roll pretty good, our defense has been pretty good. ... So we’re pretty confident in the way we’re playing right now.”

Morales was available, like shortstop Stephen Drew, months after most of last winter’s free agents agreed to contracts because signing him would have cost the new team a high draft pick. That scared away teams that might have been interested in offering him a long-term contract.

But that compensation disappeared with this past week’s draft, so the Twins, who would have lost a second-round pick, can add him without penalty. Drew, like Morales a client of agent Scott Boras, held out until the middle of last month, when he re-signed with Boston, which could bring him back without losing a draft pick.

Like Drew, Morales figures to need a week or two of minor league play to get up to speed for the big leagues, since he missed all of spring training and the first 10 weeks of the season.

“He’s always been able to hit. He’s a run-producer,” Gardenhire said. “... Hopefully he comes our way. That would be wonderful.”