Markets

Chuck Akre Offers Some Stocks From His Very Short List of Favorites

By Conrad Aenlle

Updated on: August 7, 2010 / 7:23 PM EDT / MoneyWatch

The extreme selectivity that has helped Chuck Akre achieve strong performance for many years managing the FBR Focus Fund and, lately, his own Akre Focus Fund was highlighted in Tuesday's post. Here are some of the very few stocks that he expects to do well during the uncertain times that he believes lie ahead.

American Tower (AMT). As a maker of towers for cell phone services and other forms of wireless communication, this company's products won't go out of style anytime soon and its business ought to be recession-proof. As technology advances from 3G to 4G to whatever 5G may be, "each of these upgrades requires a denser network of antennas," Akre pointed out in a MoneyWatch interview. That should allow American Tower to grow its free cash flow - the measure of operating profit that Akre favors - by 20 percent a year, and the stock trades at a reasonable valuation of about 20 times this year's cash flow.

Markel Property and Casualty (MKL). Markel insures against some of the odder risks out there, such as earthquakes, and idiosyncratic properties, like vacant buildings and summer camps. It's one of the few insurance companies that make a profit on underwriting without relying on income from their investment portfolios, Akre said.

The company's book value is increasing at a rate in the mid-teens each year, he said, but that growth is unable to be reflected in its earnings statements (that's just how accounting rules work). That makes the stock, which trades at about 17 times analysts' estimates of next year's earnings, much cheaper than it looks, in his view.

WMS Industries (WMS). One of three major suppliers of slot machines, WMS should benefit from a favorable replacement cycle (machines in many casinos are old and gamblers prefer shiny, new ones), Akre said, and with times still tough all over, including in statehouses and city halls, gambling is increasingly viewed as a useful source of revenue.

T.D. Ameritrade (AMTD). This and other electronic brokerage stocks "are on the rocks a little bit now," Akre said, because their profits tend to fall when interest rates are low. But the cheap valuations don't reflect strong growth from accounts managed by financial advisors, an expanding segment of the online brokerage industry. That should help make the stock a good one for not-so-good times.

"This is a business that even in this environment has the ability to grow earnings at 15 percent or so [each year] for the next five years," he said. Beyond that, T.D. Ameritrade "has a very strong balance sheet, and it's not going to be bothered by constrained consumers."