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Value Investor Bill Miller’s Top 10 Stock Picks

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Siraj Sarwar
·11 min read
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In this article, we will discuss value investor Bill Miller's stock portfolio strategies that helped his hedge fund Miller Value Partners in generating significant gains in the last two years. We will also closely examine how the legendary investor is seeking to beat the market trend in 2021. For that, we will review value investor Bill Miller's top 10 stock picks. Click to skip ahead and see Value Investor Bill Miller's Top 5 Stock Picks.

Bill Miller is an American investor and hedge fund manager, known for his legendary stock-picking strategies and investing perspective. Miller worked for the now-defunct investment management firm Legg Mason — famous for beating the S&P 500 for 15 straight years — before starting his hedge fund Miller Value Partners. The 71-year-old, born in North Carolina, loves philosophy and pursued a Ph.D. program at Johns Hopkins University Department of Philosophy after completing his military service.

Bill Miller's Investment Philosophy

Miller’s investment philosophy is to brutally scrutinize a stock to gauge its core value, ignoring all kinds of hypes and factors that may add up artificial weight to the stock price. Miller Value Partners loves free cash flows, and analyzes fundamentals, strategy, peers, management and capital allocation to determine the actual worth of a business.

Value investing legend Bill Miller’s strategy of investing in high growth stocks from information technology, consumer discretionary, and communications sectors worked for his hedge fund Miller Value Partners in the past two years. The firm has generated a 120% return in 2019 and a 35% return in the latest quarter. Bill Miller's portfolio diversification strategies and a keen eye on profit-making opportunities have also helped his hedge fund bounce back after posting a 33% loss in 2018. Miller has spread investments across nine sectors. He believes in buying stocks that are trading at discounts and holding them for longer period of time. His hedge fund values businesses based on their strong fundamentals and competitive advantage instead of PE ratios.

Bill Miller is optimistic about the stock market performance in 2021, expecting stronger-than-expected growth in economic conditions and profits for corporations.

“I think the consensus may be wrong is that 2021’s economic and profit growth could be considerably higher than is now priced into stocks and bonds, leading some groups that have trailed the market for years, such as banks and energy, to move from laggards to leaders. If growth is stronger than believed, the scarcity value of high growth companies will diminish and the rotation to value continues. This does not mean I think many of 2020’s market winners will become losers, rather than the market’s gains will be much more broadly distributed than in recent years.” Bill Miller said in his Q4 letter to investors.

His predictions are certainly prescient. The 2020 laggards like energy and banking stocks are leading gains this year while 2020 winners like Amazon (NASDAQ: AMZN) and Facebook (NASDAQ: FB) are struggling to trade in green in 2021. The energy sector is up more than 25% since the beginning of this year while the financial sector remains the second-best performer among the 11 S&P 500 sectors.

It also appears that the investing legend has significantly increased his stake in the energy and financial sectors during the past two quarters. The energy sector accounted for 2.72% of the overall 13F portfolio of the hedge fund at the end of the fourth quarter, up from 1.06% at the end of the September quarter. Bill Miller initiated a position in two energy stocks including Diamondback Energy (NYSE: FANG) and Alliance Resource Partners (NYSE: ARLP) and added to his existing Energy Transfer Equity LP (NYSE: ET) position.

Meanwhile, the investing legend looks exceptionally bullish on financial stocks. Financial stocks on his portfolio grew from 12% of the overall portfolio in the second quarter of 2020 to 21% by the end of the year. His hedge fund has initiated positions in several new financial stocks during the past two quarters. These positions include a big stake in Desktop Metal (NYSE: DM) and Rocket Companies (NYSE: RKT).

To capitalize on profit-making opportunities in 2021, value investor Bill Miller has initiated positions in 27 stocks and increased his stake in 29 stocks. On the other hand, his firm sold out 15 stocks during the fourth quarter and most of them were smaller positions.

Value Investor Bill Miller's Top 10 Stock Picks
Value Investor Bill Miller's Top 10 Stock Picks

Bill Miller of Miller Value Partners

Bill Miller on Bitcoin

Bill Miller is bullish on Bitcoin. In a recent interview with CNBC, he said that it’s becoming less risky to invest in Bitcoin as the cryptocurrency gains value and traction.

“I think that Bitcoin ... should probably be up 50% to 100% from here in the next 12 to 18 months. And if you were to ask me the over or under, I would definitely say it would be much more likely to be higher than lower.”

While Bill Miller's reputation remains intact, the same can’t be said of the hedge fund industry as a whole, as its reputation has been tarnished in the last decade during which its hedged returns couldn’t keep up with the unhedged returns of the market indices. On the other hand, Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 78 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that significantly underperformed the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 16. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.

Let’s start reviewing value investor Bill Miller’s top 10 stock picks to see how the legendary investor is seeking to outperform the market trends in 2021.

10. Alibaba Group Holding Limited (NYSE: BABA)

The value investing master Bill Miller has bought more shares of the largest Chines e-commerce giant Alibaba Group Holding Limited (NYSE: BABA) on the dip during the fourth quarter. The 7% shares addition increased Miller Value Partners' overall stake to 394,186 shares valued at around $91.7 million, according to the latest filings. Miller Value Partners has benefited from its Alibaba stake as shares of the Chinese online platform increased more than 200% since the firm first initiated a stake in 2017.

In its Q4 investor letter, Bill Miller highlighted aspects that negatively impacted BABA’s performance in 2020. Here is what Bill Miller stated:

“Alibaba (BABA) had quite the quarter rising up to a high of $317 in October only to end the quarter down 20% after the delay of the Ant IPO and the announced investigations by the Chinese government into monopolistic practices at the firm. There was additional pressure on the stock as the US House of Representatives passed a bill that threatens to delist Chinese companies from US exchanges unless US regulators are able to inspect their financial audits within three years. During the quarter, the company increased their share buyback program from $6B to $10B. The company report second quarter FY21 results that were largely in-line with expectations. The company reported revs of Rmb155.1B (USD 23.9B) slightly beating consensus of Rmb 153.9B (USD 23.7B) and adjusted EBITDA of Rmb 47.5B (USD 7.3B) versus 41.3B (USD 6.3B). The company maintained full year guidance for revenues of Rmb 650B (USD 100.3B).”

9. Facebook Inc (NASDAQ: FB)

The social media giant Facebook (NASDAQ: FB) has also been a permanent member of value investor Bill Miller’s portfolio since 2017. Shares of Facebook outperformed the broader market trend in 2020 but the social media giant is struggling to post some gains in 2021. The selloff is blamed on investors' shift towards value stocks from growth stocks.

Kinsman Oak Capital Partners Inc., an independent Toronto-based boutique investment firm, highlighted few stocks including Facebook in an investor letter. Here’s what Kinsman Oak Capital Partners stated:

“Our view on Facebook (FB) may be somewhat controversial. The bear case for FB boils down to antitrust risk and valuation. Facebook, although to a lesser degree, is a relative value bargain as well. We believe the company possesses an element of platform risk that Alphabet does not but, compared to the rest of the market, the stock still seems undervalued. We compared Facebook to the Russell 2000, an index full of cyclical businesses that are considered no-brainers at the beginning of a recovery and popular re-opening stocks that are poised to go higher after the vaccine is distributed (Appendix E). Facebook is significantly cheaper, growing faster, has a larger economic moat, superior margin profile, and requires less capex.

In short, we believe the obfuscated earnings power makes Facebook appear more expensive than it really is.”

8. ADT Inc. (NYSE: ADT)

The security, automation, and smart home solutions provider ADT Inc. (NYSE: ADT) is among the value investor Bill Miller’s top 10 picks for 2021. After a strong performance in 2020, shares of ADT are underperforming in 2021. Despite that, investors are still likely to benefit from ADT’s strong dividends. The company currently offers a dividend yield of almost 1.8%.

In a Q4 investor letter, Miller Value Partners also highlighted ADT’s performance. Here is what Miller Value Partners said:

“ADT Inc. (ADT) declined 3.5% during the quarter. The company reported strong 3Q results, which showed continued net subscriber growth with record customer retention (attrition of 12.9% versus 13.5% last year). The company reported revenue of $1.30B versus consensus of $1.25B with EBITDA of $564M versus $524M expected. The company updated full year guidance to revenue of $5.20-5.35B versus consensus of $5.24B and EBITDA of $2.15-2.225B versus $2.144B expected and free cash flow (FCF) guidance of $650-725M (raising the lower end by $25m from previous guidance). The company has set 2H21 as the time frame to launch their professionally installed and co-branded offering with Google (ahead of the mid-2022 guide) and they announced that they are developing an ADT-owned, next-gen, residential technology platform allowing them to use their own proprietary software.”

7. OneMain Holdings, Inc. (NYSE: OMF)

The financial services holding company OneMain Holdings, Inc. (NYSE: OMF) has been a member of Bill Miller’s stock portfolio over the past five years. Shares of OneMain Holdings helped the hedge fund in generating robust returns in the past two quarters. This is because shares of OMF rallied almost 60% in the last six months. Besides past performance, OneMain Holdings' stock price is struggling to outperform the broader market trends in 2021.

Miller Value Partners stated in its Q4 investor letter that OneMain Holdings contributed strongly to their quarterly performance. Here’s what Miller Value Partners stated:

“OneMain Holdings (OMF) was the top contributor over the quarter, advancing 56.0% after reporting Q3 Earnings Per Share (EPS) of $2.19, well above consensus of $1.26 and the quarterly dividend, which was increased 36% to $0.45/share (3.5% annualized yield and 11.5% Trailing Twelve Month (TTM) yield). Net interest income of $836M beat estimates of $778M, implying a 24.3% asset yield and 18.7% net interest margin. Origination volumes increased 41% sequentially to $2.9Bn on continued strength in digital while end-of-period net receivables were flat at $17.8Bn. Credit quality remains excellent with net charge-offs of 5.2%, the lowest level since 3Q 2015. Management guided to year-end receivables of $18.1Bn, net charge-offs of 5.6% (from 5.8%-6.0%), and net leverage of 4.3x-4.5x.”

6. Stitch Fix, Inc. (NASDAQ: SFIX)

The online seller of apparel, shoes, and accessories Stitch Fix, Inc. (NASDAQ: SFIX) is among the value investor Bill Miller’s top 10 stock picks for 2021. Shares of Stitch Fix grew 38% so far in 2021, extending the twelve-month gains to 240%. The firm has been holding a position in Stitch Fix since the fourth quarter of 2017.

Miller Value Partners stated in the Q4 investor letter that Stich Fix's strategy of moving online helped it in generating strong returns for investors. Here is what the firm said:

“Stitch Fix, Inc. (SFIX) climbed an impressive 116% in the quarter following the release of their Fiscal Year (FY) 2021 first quarter results. Revenue for the first quarter came in at $490M, beating estimates of $481M. Gross margins were higher than anticipated at 44.7% versus expectations of 43.6% and adjusted net income coming in at $9.54M versus expectations for a -$18.5M decline. The company provided stronger than expected full-year guidance, with revenues of $2.05-$2.14B, relative to $2.01B estimates. Stitch Fix finally announced their new CFO, Dan Jedda, who joins the company from Amazon.com. The company is beginning to see uptake in their “direct buy” offering which is allowing them to expand their products to customers that are not current Fix members allowing them to expand their total addressable market. The shift to online purchasing has also further supported the company’s strong momentum.”

Click to continue reading and see Value Investor Bill Miller's Top 5 Stock Picks.

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Disclosure: None. Value Investor Bill Miller's Top 10 Stock Picks is originally published on Insider Monkey.