Investing

Bill Miller's Value Bets

Where in the market does the manager of Legg Mason Value see opportunity? His answers may surprise you.

You can't accuse Bill Miller of equivocating in his outlook for the stock market in 2007. When we reached the famed Legg Mason fund manager on March 14, he told us: "It's hard to find a better environment for equities than we have right now. I'll be surprised if the market's not up in the double-digits this year."

Why is he so optimistic? Miller points to solid corporate balance sheets, high returns on equity, huge share buybacks, a robust buyout market, strong global economic growth, tame inflation and low interest rates.

What about the recent market volatility? "It's just noise, in my opinion," he says. The abnormality, he says, was the fact that the market never corrected even two percent during the long ascent that started last summer. "After the Fed stopped tightening, the market was up in an almost linear fashion," he says. If you missed the chance to buy last summer, this sell-off is a "gift" to climb back into the market, says Miller, who is best known as the manager of Legg Mason Value fund (symbol LMVTX), which saw its remarkable 15-year streak of beating Standard Poor's 500-stock index end in 2006.

So where does Miller see value? Among cyclical plays, he finds homebuilders irresistible at these prices. Many are trading at or below book value (assets minus liabilities), compared with a price-to-book ratio of 1.6 in normal times. His newer, smaller and more flexible Legg Mason Opportunity Trust (LMOPX), a member of the Kiplinger 25, is populated with such homebuilders as Centex, Lennar, Pulte Homes and Ryland.

But his largest industry holding is in steel, which he calls a long-term structural story. Miller says global consolidation in steel is making the business less cyclical and prone to excess capacity. The industry's price discipline is boosting free cash flows. Opportunity holds United States Steel, AK Steel and Dutch-based Arcelor Mittal.

Another one of Miller's large contrarian wagers is the unloved Eastman Kodak. Not only is the company reaching the culmination of an extensive restructuring plan, but he believes its new inkjet-printer technology will be a game-changer. "We think it will be disruptive to HP and Lexmark," says Miller, who thinks Kodak shares are worth twice the $22.84 they closed at on March 15.

Most Popular

When Could We Get a Third Stimulus Check?
Coronavirus and Your Money

When Could We Get a Third Stimulus Check?

President Biden and others in Congress are pushing for a third-round of stimulus checks, but it might be a while before we get them.
January 20, 2021
Where's My Stimulus Check? Use the IRS's "Get My Payment" Portal to Get an Answer
Coronavirus and Your Money

Where's My Stimulus Check? Use the IRS's "Get My Payment" Portal to Get an Answer

The IRS has an online tool that lets you track the status of your second stimulus check.
January 18, 2021
20 Best Stocks to Buy for the Joe Biden Presidency
stocks to buy

20 Best Stocks to Buy for the Joe Biden Presidency

Joe Biden has been sworn in as America's 46th president. These are 20 of the best stocks to own under the new administration.
January 20, 2021

Recommended

The 11 Best Vanguard Funds for 2021
mutual funds

The 11 Best Vanguard Funds for 2021

It'd be easy to put together a full 2021 gameplan using nothing but a mix of the best Vanguard funds. Here are 11 that stand out for the year to come.
January 7, 2021
2021's Best Mutual Funds in 401(k) Retirement Plans
mutual funds

2021's Best Mutual Funds in 401(k) Retirement Plans

A key to smart saving for retirement: spreading your portfolio across a few of the best mutual funds in your 401(k) plan. Here, we profile the top opt…
December 29, 2020
The Best Fidelity Funds for 401(k) Retirement Savers
Investing for Income

The Best Fidelity Funds for 401(k) Retirement Savers

Fidelity funds are renowned for their managers' stock-picking prowess. We rate Fidelity's best actively managed funds that are popular in 401(k) plans…
December 28, 2020
The Best American Funds for 401(k) Retirement Savers
mutual funds

The Best American Funds for 401(k) Retirement Savers

American Funds has 14 actively managed mutual funds among the 100 most popular 401(k) offerings. We look at the Best American Funds in that group, and…
December 28, 2020