Bill Miller is a legendary investor whose fund that he managed at Legg Mason managed to beat the S&P 500 for 15 straight years through 2015. Last year, Miller left Legg Mason after his fund had been underperforming the market and went on to manage his own firm LMM, Inc., which had been partly owned by Legg Mason until Miller bought its stake. In February, Miller rebranded LMM into Miller Value Partners and continues to serve as its Chief Investment Officer and Chairman.
Miller has made headlines recently, after he revealed that a hedge fund that he runs has half of its assets invested in Bitcoin. The investor said in an interview on the WealthTrack podcast with Consuelo Mack that he started buying the cryptocurrency back in 2014 and his average purchasing price stands at around $350. Well, given that Bitcoin is now at over $18,000, Miller certainly made a hefty profit, at least on paper.
But let’s leave aside Miller’s cryptocurrency investments and focus on his stock picks. According to Miller Value Partners’ latest 13F filing, the fund has an equity portfolio worth $2.33 billion. Even though Miller is known for concentrated bets, the 13F portfolio of his fund is fairly diversified with over 70 positions, most of which are in Healthcare, Finance, and Consumer Discretionary sectors, which amass between 20% and 30% of the total portfolio value each.
In this article we will focus only on a couple of Miller’s stock picks. Particularly, we will take a look at several stocks that he is bullish on and said so himself a year ago during an interview on CNBC, which we covered last November. Miller mentioned Amazon.com, Inc. (NASDAQ:AMZN) and Valeant Pharmaceuticals Intl Inc (NYSE:VRX) and provided some of his expectations regarding these companies. Therefore, let’s take a look at those comments and compare with what actually happened and whether the investor was right about the stocks.
Let’s start with an industry that Miller said in November 2016 that he was bullish on. At the time, Miller said that he got a return of around 500% from his investments in airline stocks, such as Southwest Airlines Co (NYSE:LUV), American Airlines Group Inc (NASDAQ:AAL), United Continental Holdings Inc (NYSE:UAL), and Delta Air Lines, Inc. (NYSE:DAL), but pointed out that the industry was still undervalued, because airlines are a commodity business and the internal incentive structured are based on return on capital. Miller also highlighted Delta Air Lines, Inc. (NYSE:DAL), saying that it has a 15% free cash flow yield.
One year later, and Miller is still bullish on airline stocks. Among his top 10 holdings, Delta Air Lines, Inc. (NYSE:DAL) is on the sixth spot as his fund owns 1.66 million shares worth $81.11 million, followed by American Airlines Group Inc (NASDAQ:AAL), in which Miller Value Partners holds a $78.74 million stake containing 1.66 million. The other airline bet of the fund is United Continental Holdings Inc (NYSE:UAL), in which it owns 1.05 million shares worth $64.09 million.
Two of Miller’s airline bets have paid off well so far this year, Delta Air Lines, Inc. (NYSE:DAL) and United Continental Holdings Inc (NYSE:UAL), whose stocks have advanced by over 10% year-to-date. On the other hand, United Continental Holdings Inc (NYSE:UAL)’s shares have lost around 11% over the same period. Nevertheless, the two stocks that gained ground underperformed the S&P 500, which is up by 20%.
However, the latest developments suggest that airlines stocks have more good things going on for them. In addition to solid fundamentals that some airline companies have, the whole industry is poised to benefit from the tax reform that is awaiting the final passage in Congress. While some argue that corporate tax cut to 20% (21% in the new version of the bill) from 35% will not have a lot of benefits for many companies, because they usually don’t pay the full tax rate as it is, airlines usually accrue income tax at its full rate. According to Reuters, Delta Air Lines, Inc. (NYSE:DAL)’s CEO Ed Bastian has said that his company plans to use savings from lower taxes to invest in new equipment and pay down some debt.
Among the investors in our database, Delta Air Lines, Inc. (NYSE:DAL) is also the favorite airline stock, as 77 funds hold shares of the company as of the end of September, down from 84 funds a quarter earlier.
On the next page, we will take a look at two other stocks that Bill Miller is bullish on, Amazon.com, Inc. (NASDAQ:AMZN) and Valeant Pharmaceuticals Intl Inc (NYSE:VRX).
Amazon.com, Inc. (NASDAQ:AMZN) represents the largest position in Miller Value Partners’ equity portfolio, the fund holding 119,750 shares worth $115.12 million. The eCommerce behemoth is one of Miller’s long-term holdings, his fund owning shares since 2007. In his interview a year ago, Miller said that Amazon.com, Inc. (NASDAQ:AMZN) was poised to grow faster under the presidency of Donald Trump and that the company won’t face any issues from anti-trust regulators under the new government.
Amazon.com, Inc. (NASDAQ:AMZN)’s stock has surged by nearly 60% since the beginning of the year, as the company continued to work on all cylinders in the eCommerce space and its cloud platform, Amazon Web Services, continues to soar. In the last two quarters, Amazon.com, Inc. (NASDAQ:AMZN) posted revenue growth of 25% and 33.7%, respectively, while AWS sales surged by 42% on the year in each quarter. The company did receive some criticism from the new White House administration as President Trump bashed it on Twitter a couple of times, but investors shrugged off those comments, as they understand very well that Trump’s problem is not with Amazon itself but with the company’s CEO Jeff Bezos and the newspaper he owns, Washington Post.
During the third quarter, the number of funds tracked by Insider Monkey long Amazon.com, Inc. (NASDAQ:AMZN) inched up by one to 133, while the total value of their holdings remained relatively unchanged at $17.25 billion.
Miller also pointed out Valeant Pharmaceuticals Intl Inc (NYSE:VRX) among the pharmaceutical stocks he liked last year, saying that the shares could double in the following two or three years. In Miller Value Partners’ 13F, Valeant Pharmaceuticals Intl Inc (NYSE:VRX) is the largest healthcare holding and the fourth largest position overall, with the fund having reported a $98.63 million position that contains 6.88 million shares as of the end of September. Among the investors in our database, the company is not seeing much support, as there are just 29 funds long the stock, down by eight over the quarter. By comparison, there were 58 funds bullish on Valeant at the end of September 2016.
Valeant Pharmaceuticals Intl Inc (NYSE:VRX) was involved in a scandal in 2015 and 2016, as the company was criticized on the Hill over its drug pricing policies, with a Deutsche Bank report estimating that the pharmaceutical giant raised prices on over 50 drugs in 2015 alone. Prior to that it was revealed that Valeant had been misstating its financial results and had serious accounting issues. However, Miller said that the company would survive the crisis and added that it should focus on its free casah flow, as well as dispose of some assets.
Since the beginning of the year, Valeant Pharmaceuticals Intl Inc (NYSE:VRX)’s stock has gained 46%, but the price is still far from the $240 levels seen in 2015 before the scandal. Over the last year, the company reshuffled its management team, sold some of its divisions, including Sprout Pharma, iNova Pharma, and Obagi. However, Valeant also missed the expectations in its last financial reports and analysts, while appreciating the latest moves made by the company are still cautious about the stock.
Disclosure: none
