Bill Miller, the legendary tech investor, is savoring success again after his Legg Mason tech fund got ravaged in the financial crisis. Now, his $2 billion Miller Value Partners fund is outperforming the market by roughly 3 percentage points annually over the past decade, according to Morningstar. Miller says he's staying "fully invested" in what he sees as an "ongoing bull market,” per his latest Q4 market letter dated Jan 5.
“This is the only time in my 37 years of managing money that we’ve seen inflows despite a market correction,” he stated in an interview with Institutional Investor. Miller Opportunity Trust saw an inflow of $377 in 2018. “Unemployment is low; inflation is low; valuations have compressed 15 to 20 percent this year because earnings are up and stock prices aren’t. I think this is a normal correction in an ongoing bull market. Until something changes at the macro level and with valuations, we’re fully invested,” said the Street vet.
His optimism regarding a forthcoming market rebound is why he expects his top picks to outperform, including: Facebook Inc. (FB), ADT Inc. (ADT), Avon Products Inc. (AVP) and Amazon Inc. (AMZN), per MarketWatch.
Bill Miller's 4 Favorite Picks
(Company; Market Cap; YTD Stock Performance)
- ADT; $5.4 billion,16.6%
- Amazon; $816.9 billion, 8.1%
- Avon; $876 million, 29%
- Facebook; $428.2 billion; 12.3%
2019: 'Year of the Pig'
Miller draws parallel to the Chinese Zodiac, noting that while last year was the “year of the dog,” with the S&P 500 posting its worst annual performance in a decade and December at its weakest since 1931, 2019 is the year of the pig.
“In this year of the pig, I think courage will be rewarded in the equity market, just as it has for most of the past 10 years,” wrote the investor. He views both the Financial Crisis and the Great Depression as once-in-a-lifetime events, while the former has made investors risk and volatility phobic.
“When markets begin to fall, as happened in early 2016 and last quarter, investors rush for the equity exits and into bonds and cash,” he explained. Miller expects current “well-advertised macro worries” to prove as brief as 2016’s. Meanwhile, he sees fears over Fed tightening as overblown, citing Chairman Powell’s recent remarks emphasizing “flexibility, adaptability and open-mindedness.” Historically low unemployment and subdued inflation were also cited as positive indicators.
Despite these market catalysts, stocks are now priced at under 15 times 2019’s estimated earnings, the lowest point since late 2013 and far below 37 times the annualized, hold-to-maturity return on 10-year treasuries, wrote the investor.
“Corporate earnings and dividends should grow about 5% or so long-term, while today’s 10-year coupons will not,” he added, noting that as Buffett stated amid 2008 lows, he does not know exactly when the right time is to buy, but he does know that prices are the most attractive they have been since multi-year lows. “There are plenty of bargains to be had,” he concluded.
Personal Care Company, Tech Giant
One such bargain highlighted by Miller is beauty company Avon Products. At a share price just under $2 on Monday, the stock reflects a 21.9% loss over 12 months, and a near 29% rebound in 2019. Earlier this month, shares of the London-based firm rallied after Avon announced a deal to sell its China manufacturing operations. The cosmetics industry direct-seller has attempted to cut costs as it ramps up its transformation plan, honing in on e-commerce, delivery services and strategic partnerships. In Q3, earnings beat expectations by a healthy mark, yet the firm warned that a turnaround would take time as it reported sales down over the same period last year.
As for Amazon, Miller suggests that investors should not be scared away by its lofty valuation. “I don’t let the price of a company’s stock confuse me about a company’s fundamentals. That’s rarely the end of the story," he stated.
We'll be sure to get a glimpse into whether or not Miller’s thesis holds as major tech companies line up to report recent quarterly results this week. In particular, reports from Amazon and Alphabet Inc. (GOOGL) over the coming weeks should tell if Miller is right, and is still on a roll. If he’s wrong, he may lose a great deal of money, and investor confidence.