Legg Mason's Miller Is Buying Kroger, Albertson's: Mutual Funds
By Phil Serafino
New York, Dec. 8 (Bloomberg) -- Money manager William Miller has earned a reputation as a value investor who's willing to buy high-flying Internet stocks such as Amazon.com Inc.
His ability not to be a prisoner of any one philosophy has helped make Miller the only fund manager who's beaten the Standard & Poor's 500 Index every year since 1990.
These days, though, he's back to hunting in more traditional grounds. That means he's been buying shares of Waste Management Inc., Kroger Co. and Albertson's Inc. -- three companies whose stocks have plunged in recent months. ``There's a lot of good value in the market,' Miller, manager of the $13.5 billion Legg Mason Value Trust, said in an interview. ``The attention in the market has been focused on the very highly visible, rapidly ascending names. But there are a lot of things out there that are very cheap.'
Miller has been one of the most consistent mutual fund managers in the U.S. this decade, beating the S&P 500 every year. Last year 83 percent of U.S. stock fund managers trailed the index.
He still considers himself a so-called value investor. Such
fund managers, who look for companies whose share prices are
cheap relative to their earnings, have trailed the market in
recent years, largely avoiding technology stocks. Miller
attributes his success to an early recognition that technology
could be a value sector.
He made the shift in 1995 and 1996.
``A lot of value people at that point were increasing their
weightings in paper and chemicals,' said Miller. ``We were
wondering why we should buy a paper company that was losing money
and might never make money when we could buy a company that was
doing great at six times earnings and growing rapidly.'
Buying Dell
He bought Dell Computer Corp., now one of his funds' top
three holdings. In the past four years, the shares have risen 40-
fold. Recently, however, he's begun returning to a more
conventional focus.
Miller said he bought 500,000 shares of Kroger, the largest
U.S. supermarket company, on Monday, when the stock fell 26
percent after Kroger said fourth-quarter profit might fall short
of analyst forecasts. He began buying Albertson's Inc. ``a month
or two ago' and has been buying shares almost every day. He
bought Waste Management shares yesterday.
Kroger sells for about 12 times next year's expected
earnings per share, Miller said. The Standard & Poor's 500 Index,
the benchmark against which Miller and most other fund managers
are compared, sells for about 24 times next year's expected
profits.
For now he's not buying any computer-related stocks, Miller
said. ``We're looking at a variety of technology names but we
haven't been buying anything in that space,' he said.
Miller bought Amazon shares in September and October, and
now has under 2 percent of his fund's assets in Amazon. It would
be a radical purchase for most ``value' managers, who typically
buy out-of-favor buy stocks that sell for a relatively low price-
earnings or price-book multiple.
Unfazed by Amazon
Amazon is up 65 percent this year and sells for 20 times
this year's expected revenue. The company, which sold shares to
the public for the first time in 1997, has never turned a profit
and isn't expected to until 2001. That doesn't faze Miller.
``If we only thought they (Amazon) could barely be
profitable, we wouldn't own it,' Miller said. ``We think they
can be phenomenally profitable over a long period of time.'
Amazon is a good value because the company's managers do a
great job of selling merchandise online, he said, and that's not
as easy a business as some Amazon skeptics make it out to be, he
said.
In recent months, he noted, Levi Strauss & Co. said it
wouldn't sell jeans on its website, while Wal-Mart Stores Inc.
delayed the start of its redesigned site and said it would hire
an outside company to fill the orders.
``It comes down to each business and trying to figure out
what the economics are and who will be successful,' Miller said.
He said Amazon has a scarce resource in the online world:
customers to whom it can sell new products.
Finding Stocks
``An additional value of Amazon is the tremendous customer
data they have,' he said. ``They are using the data they have to
make the shopping experience more productive for the customer.'
Miller said he's having no trouble finding stocks to buy.
``The market looks like, in the aggregate, (it's) fairly
valued,' he said. ``Within that context there are areas that
look really expensive, like most Internet names; there are those
that are really cheap, like a lot of the banks.'
Miller's biggest bank holdings are Chase Manhattan Corp.,
Bank One Corp. and Citigroup. He's also finding value in smaller
companies.
There's no reason expect the stock market's five-year
winning streak to end in 2000, since the economy and corporate
profits should continue to grow, he said. ``We're looking for
market growth in the 8-10 percent range,' Miller said. |
