Steven M. Barry

"We think value traps are going to be more prevalent than they have been for a long time," says Steve Barry, the New York-based chief investment officer of Goldman Sachs Asset Management.

For Steven Barry of Goldman Sachs, cash alone isn't king.

Many growth managers base buys on a company's free cash flow.But as manager of the $2.02 billion Growth Opportunities (NASDAQ:GGOAX - News) fund, Barry likes to know what the company is doing with the money.

"We watch what they are doing with the capital allocation," he said."Are they making acquisitions?Spinning off a division?Investing in R&D or the sales force, buying back shares or retiring debt?"

Some other managers don't like companies that reinvest cash flows rather than pay it out as dividends or buybacks.

Barry describes his strategy as "buy the business, not the stock."He wants companies that use cash flow to grow and boost returns.

Once he and his team feel they understand a company's business model, they ask what they are paying for it.

Earnings and price-earnings ratios only show single facets of a stock's performance.But every company has to be judged on use of cash and balance sheet as well as earnings.

Barry also thinks recent trends in the broad market favor active, bottom-up investors.

Earnings growth across many industries has slowed.At the same time, market volatility has grown.

Companies in the fund are leaders in their field and tend to grow independent of what the economy is doing, Barry says.

Barry's tack has led the fund to a 3.14% gain so far this year, going into Wednesday.
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Barry says there still is a lot of room for those stocks to rise.A company that provides services to energy companies should go up, too.

He likes energy extractors like Continental Resources (NYSE:CLR - News), a new buy, that share certain traits.

One is increasing production.
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Before committing to a full position in any stock, Barry asks if the rest of the market has figured out the stock's value and whether he wants to make that large a bet.
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Barry notes some stocks have been in the fund for a year before the team takes another look.

Steven M. Barry — Chief Investment Officer and Portfolio Manager, Goldman Sachs Asset Management

Has been affiliated with the fund since 1999

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Steven M. Barry,Chief Investment Officer,Senior Portfolio Manager

For Steven Barry of Goldman Sachs, cash alone isn't king.