Bill Miller Picks Through the Telecom Rubble
By Christopher J. Traulsen
Bill Miller, the all-star fund manager who has beaten the S&P 500 index for 10-straight years at Legg Mason Value Trust (NA: LMVTX), isn't exactly bullish, but is optimistic that stocks are on the road to recovery. At least that's the message in his latest letter to shareholders of his vaunted fund. He also continues to find value in the telecom sector.
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Miller doesn't mince words when it comes to saying where he thinks the market is headed: up. ``Stocks tend to bottom when the economy or corporate earnings bottom. Since the market is a discounting mechanism, stocks often begin to rise well before the general economic news turns positive. We continue to believe that the lows reached in late March and early April of this year will be the lows for this bear market and that the direction of the market is higher.''
But lest you think Miller is out there loading up on down-and-out tech names, he's not. He isn't finding many opportunities at all. ``Value stocks are no longer cheap,'' writes Miller. ``Despite their precipitous decline, most tech stocks are not cheap, either, and not just because their earnings are depressed ... investors are pricing in growth rates companies have achieved in the past, but not what they are likely to achieve in the future.''
Miller is, however, finding one pocket of value in the market--the telecommunications sector. Although he characterizes the rest of the equity market as ``hyper efficient'', and thus relatively devoid of opportunity, he thinks the telecom sector is the exception. ``A rash of bankruptcies, regulatory uncertainty, technological confusion, overcapacity, declining sales, and collapsing earnings have combined to create a deep pessimism that may provide opportunity for long-term investors.''
As the fund's June 30 portfolio shows, Miller built positions in Corning (NYSE: GLW - news) and Tellabs (Nasdaq: TLAB - news) in the second quarter, both of which he describes as ``leaders in the equipment area.'' He also substantially increased the fund's position in communications-network provider Level 3 Communications (Nasdaq: LVLT - news). Of the three positions, Tellabs is the largest at 1.8% of the fund's assets.
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