Bill Miller finds opportunities in battered financials

What is your assessment of valuations of US shares at the moment?

Equity valuations in general are not demanding, interest rates are low, and corporate balance sheets, especially in the US, are in excellent shape. That sets the stage for what should be an improving environment for investors in stocks and in spread credit products. Our valuation work indicates that the S&P500 Index is currently worth about 17 times earnings versus a current market P/E of about 14.5 times on 2008 consensus estimates, suggesting that the upside return to fair value for US equities is in the high-teens.

What is the appropriate strategy to take when investing in US stocks now, with a long-term investment horizon in mind?

We believe the new market leadership will come from the same place it usually does: the old laggards. The new leadership will be what no one wants to own today, especially large and mega-cap stocks which have lagged the market most of the last five years. We believe that the greatest gains over the next five years will be made in those securities people are panicked about today. We believe the US market offers attractive investment opportunities for long-term investors whose strategy is valuation-driven, patient and contrarian in nature.

What is the greatest challenge you are facing in investing in the US?

The greatest challenge for investing in the US is coming from the global commodity markets. Oil has supplanted credit as the driver for the markets. Through oil’s impact on US consumer spending and corporate input costs, the recent run-up in oil prices is causing credit spreads to widen, destruction in demand and changes in consumer behaviour. Since oil went above $120 in early May, credit spreads have reversed their improving trend. If commodities break, or even just stop rising, equity markets should do well.

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Bill Miller Still Sees Value in Beleaguered Financial Stocks

Legendary fund manager Bill Miller can still draw a crowd, even after a couple of disappointing years.

The manager of Legg Mason's (LM) Value Trust (LMVTX) fund, who beat the S&P 500 for 15 years in a row until his streak ended in 2006, spoke to the press Tuesday about his concerns that the mortgage crisis could push the U.S. economy into recession and his views that, in the long term, many financial, consumer and homebuilder stocks are still good investments.
Value Trust is well off the S&P's performance this year, too. But to underscore how exceptional that 15-year run is, the funds with the longest active streaks beating the S&P 500 are at only eight years.

Miller's exceptional long-term performance means, among other things, that a lot of market watchers pay attention to what he says.

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Bill Miller's simple plan for Citi

Bill Miller, the legendary Legg Mason Value Trust fund manager, owns shares of Citigroup, the embattled financial services giant that is looking for a new chief executive officer. And Miller has a suggestion about the type of person that the bank should hire to replace the ousted Charles Prince.

He said the bank should find someone who has a similar management style to Hewlett-Packard CEO Mark Hurd. Hurd replaced Carly Fiorina in 2005 and has led a dramatic turnaround at HP, mainly by cutting costs and focusing the computer company on what it does best.

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Legg Mason Value Trust Releases Letter to Shareholders

On the 20th anniversary of the Crash of '87, the US stock market took a drubbing, falling 2.56%. In a curious parallel, the woes that are besetting the market are the result of a crash in the credit markets every bit as severe as that which hit equities back then, but which threatens to have more impact on the US and the global economy.

The stock market can close down for a while and it really doesn't matter all that much. The primary function of the stock market is not to finance company operations, it is to price assets. Companies go public once, and most come to the equity market for capital sporadically, and then typically to finance long-lived projects or acquisitions.

Link to the letter

Bill Miller Is Bullish

The current credit crunch is "much more serious" for the U.S. financial system than the 1987 stock market crash was, warns Legg Mason's Bill Miller in a conference call with analysts. "The mortgage market is bigger than the whole U.S. economy, and that market is effectively shut down."

But once the immediate crisis has passed, Miller thinks stocks will head higher. And he predicts that the industry sectors that have led the market in recent years, such as energy and basic materials, will become laggards. "The leadership is likely to change," says Miller, whose Legg Mason Value (symbol LMVTX) beat Standard & Poor's 500-stock index a record 15 straight years until 2006.

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Legg Mason's Miller says unfazed by housing slump

Legg Mason's (LM.N: Quote, Profile, Research) star stock investor, Bill Miller, admits his fund's poor recent performance reflects investments in the battered housing sector and a failure to own surging energy stocks -- but he is unfazed by the U.S. housing slump.

As of Friday, Miller's Value Trust fund (LMVTX.O: Quote, Profile, Research) was down 2.73 percent year-to-date, putting it at the very bottom of similar funds, according to Lipper Inc., a unit of Reuters Group Plc.

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Bill Miller: What's luck got to do with it?

The streak may be over, but Bill Miller remains the iconic fund manager of his generation. As manager of Legg Mason Value Trust, he beat the market for 15 years in a row until his run ended last year.
If you had invested $10,000 in Miller's fund in 1990, you would have $92,033 today.
Bill Miller

With suits so rumpled they can resemble pajamas, Miller pays no attention to style. He shows the same contempt for convention when he invests.
While most value investors refuse to buy technology stocks, Miller has made a killing on Amazon (Charts, Fortune 500), AOL, Dell and eBay (Charts, Fortune 500).
A former graduate student in philosophy who earlier served as a military intelligence officer, Miller probably has the most original mind in the investing business.
Money Magazine's Jason Zweig caught up with him recently - below is the full transcript.


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