Barron's interviews free-cash guru Bruce Berkowitz, CEO of Fairholme Capital Management, whose no-load Fairholme Fund boasts returns of 16.27% since its 1999 inception. Berkowitz advocates buying stocks capable of reacting to a variety of economic conditions, with an emphasis on companies with above-average free cash flow.
Stocks he likes:
Conglomerates Berkshire Hathaway (BRK.A) and Leucadia National (LUK) -- "they are always playing defense, because you never know when something bad will happen." Berkshire is still "reasonably priced," and stands to have "one more good growth spurt" as it capitalizes on current economic soft spots.
WellCare Health Plans (WCG) -- shares plunged when its headquarters were raided by federal agents in October. Past history shows that after a fine and some executive firings, firms in similar situations move on. With $5/share ($37) of free cash flow, it's too cheap.
Mohawk Industries (MHK) -- despite a rough residential real-estate market, MHK can earn $7/share of free cash flow. CEO Jeffrey Lorberbaum is growing the business while cutting costs.
St. Joe (JOE) -- an international airport is being built in the middle of its Florida land. Long-term, its holdings of oceans, rivers, lakes and sand make it a "very, very valuable company."
Sears (SHLD) -- despite recent turmoil, CEO Eddie Lampert understands retail. Sears' properties provide a downside cushion; shares are priced for a worst-case outcome.
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