Legg Mason's Miller sees clear sailing for stocks
Thu December 11, 2003 10:56 AM ET
By Herbert Lash
NEW YORK, Dec 10 (Reuters) - If you take a page from Legg Mason Inc.'s (LM.N: Quote, Profile, Research) highly acclaimed fund manager Bill Miller, hold onto your stock picks when they prove a good ride.
Miller, whose Legg Mason Value Trust fund is set to beat the Standard & Poor's 500 index (.SPX: Quote, Profile, Research) for the 13th straight year in 2003, said on Wednesday the fund's turnover this year was just 4 percent, the lowest rate since its inception in 1982.
Despite a bit of angst about high stock valuations making the rounds on Wall Street, Miller said the outlook for equities is good. He said he'd be more surprised if stocks return high single digits rather than as much as 30 percent next year.
Wariness about stocks he encounters in traveling across the country is unfounded, he said. Naysayers can always be found, but in the past 20 years there have only been two recessions, and they've lasted about eight months each, he said.
"There is a lot of focus on the negative, and not on what may go right," Miller said at Legg Mason Asset Management's 10th annual year-end luncheon in New York. "The bearish view always sounds more reasonable than the optimistic view."
But Miller paraphrased money manager John Templeton, who said bull markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria. He said if true, "We're clearly in the skepticism phase of the bull market."
With low inflation and strong growth ahead for the economy, corporate profits and employment, equities are set for clear sailing, he said.
But stocks need to go higher to clear the air of pessimism, and Miller thinks stocks will do just that. According to historical data, he said the broad market has gained 15 percent annually in the five years after a negative five-year run.
Unless stocks climb more than 28 percent next year, the trailing five-year return on the broad market will be negative. "I'm not making a forecast, just an observation," he said.
Miller said stocks geared to the Internet will do well, such as Ebay Inc. (EBAY.O: Quote, Profile, Research) , Amazon.com Inc. (AMZN.O: Quote, Profile, Research) , Barry Diller's InterActiveCorp (IACI.O: Quote, Profile, Research) and Yahoo Inc. (YHOO.O: Quote, Profile, Research) He said their possibility to grow outweighs any concern about high price-to-earnings valuations.
The Legg Mason Value Trust fund, which has gained about 36 percent this year through Thursday, according to data from Lipper Research, doesn't currently hold any energy companies, but Miller said that could change.
He the past technology often outstripped the rate of demand for energy products, but the sector has become more capital disciplined. Rising demand from China, and perhaps a coming North American natural gas crunch makes the sector attractive.
"We're finding a lot of potential in energy. It appears to be worth investigating," he said.
After the demand for technology hardware benefited companies like Dell Inc. (DELL.O: Quote, Profile, Research) , EMC Corp. (EMC.N: Quote, Profile, Research) and Oracle Corp. (ORCL.O: Quote, Profile, Research) in the 1990s, he said software companies remain promising. Computer Associates International Inc. (CA.N: Quote, Profile, Research) has been ballyhooed by the press but worth holding, he said.
Eastman Kodak Co. (EK.N: Quote, Profile, Research) is another classic play by Miller, who said the company's plunging stock price reflects a far more negative view than the evidence shows. Investor assumptions about declining demand for traditional film products does not take into account Kodak sales outside of the United States and Japan, where the conversion to digital will be much slower.
"Film sales are dropping," Miller said, but "the evidence doesn't support the (negative) theory." Legg Mason holds a 12.5 percent stake in Kodak, making it the biggest institutional holder of the company's stock.
--------------------------------------------------------------------------------
reuters.com |
