Below are Bill Miller’s top 5 stock picks. To read our analysis of Bill Miller’s investment philosophy and his thoughts on Bitcoin, go to Value Investor Bill Miller’s Top 10 Stock Picks.
5. Desktop Metal Inc (NYSE: DM)
Bill Miller’s stock-picking strategy also worked in the case of Desktop Metal Inc (NYSE: DM). The firm initiated a position in Desktop Metal during the third quarter and increased the stake by 323% in the December quarter, making it the fifth-largest stock holding of the 13F portfolio.
In its Q4 investor letter, the Miller Value Partners highlighted the reasons for their higher stake in Desktop Metals. Here’s what the hedge fund said:
“Desktop Metal is a name that made it into our top holdings at the end of year due to strong performance since our purchase at the end of the third quarter. The company is a second-generation industrial printing company led by a great team. It came public through a merger with a SPAC led by Leo Hindery, Jr. who we’ve known from his successful history at Telecommunications, Inc (TCI) where they excelled at capital allocation. One of the unique benefits of structure is that it helps us get access to unique opportunities. Here, we were able to invest in the PIPE (private investment in public equity) to take the company public based on industry relationships.
Desktop Metal is early in its commercialization, but we think the company has great potential over the next five years with a stellar list of customer partners and potential applications. We bought on the deal at a $1.8B enterprise value or 6.7x the EBITDA management estimates it can earn in 5 years before any acquisitions. For a company capable of growing at such high rates (triple digits for next couple years), with a great business with high moats and a fantastic team, this was a great deal. It’s doubled since the deal. This is a great example of an undervalued, long-term, growth-oriented opportunity that we were still able to source in this market.”
4. Amazon.com, Inc. (NASDAQ: AMZN)
Bill Miller’s hedge fund has capitalized on the stunning Amazon (NASDAQ: AMZN) share price rally by selling 19% of its stake in the fourth quarter. Despite that, Amazon is the fourth largest stock holding of Miller Value Partners at the end of the fourth quarter.
L1 Capital International Fund, which returned 5.1% for the quarter, stated that Amazon is likely to perform well ahead amid its strong business model. Here’s what L1 Capital International Fund stated:
“Several investments in the technology sector were trimmed on valuation grounds with the proceeds used to increase our investment in Amazon. Amazon’s successful flywheel business model and Amazon Web Services are well known. However, we believe the current share price under‑appreciates:
– The consistency and longevity of Amazon’s growth potential in its key businesses;
– The importance of additional revenue streams such as advertising which are high margin and growing rapidly; and
– The strengthening barriers to competition and competitive advantages arising from Amazon’s stepped‑up investment in logistics and other infrastructure.”
3. DXC Technology Company (NYSE: DXC)
Shares of DXC Technology Company (NYSE: DXC) underperformed in the last twelve months compared to the broader market index. DXC is the third-largest stock holding of value investor’s 13F portfolio valued at $137 million. The firm first initiated a stake in DXC technology during the December quarter of 2019.
Miller Value Partners stated in its fourth-quarter investor letter that DXC is a good stock to buy and hold. Here is what the hedge fund said:
“Finally, I’d like to highlight a holding that we’ve been recently scaling higher, DXC Technology (DXC), a combination of CSC and the Enterprise Service business of Hewlett Packard Enterprise. We are very familiar with the business, having owned both companies at different points in time over the past 15 years. DXC Technology is a Global IT services company that is focused on helping clients with their mission-critical system and leading digital transformation. While the Technology sector has been a market favorite over the past couple of years, DXC has been far from that. The stock price has been under significant pressure, down more than 80% from its post-merger highs as the company ran into integration challenges. DXC’s new CEO, Mike Salvino, has a strong track record in the industry, previously a very successful senior executive at Accenture. His plan for the company has a lot of similarities to successful action steps taken by Maxar Technologies’ (MAXR) new CEO early in their turnaround: focusing on improving key customer relationships and employee morale, selling non-core assets, significantly reducing cost structure, and looking to reduce capital intensity of the business overtime. DXC’s new CEO is also rolling out new cross-selling initiatives, and his significant multi-year cost reduction program will begin in the back half of this year. Upon completion, it has the potential for more than $700M in savings or greater than $2/EPS. Success in implementing the enhancements should allow the company to return to double-digit EBIT margins and mid-high teens ROE supporting normalized EPS greater than $7/share. It’s worth mentioning that DXC peers, Accenture (ACN) and Cognizant Technology Solutions (CTSH), have low to mid-teens EBIT margins and are currently being valued at price–to-sales of 2 to 3 times, while DXC’s market price is currently at a 70% discount to sales! As the turnaround plan improves operating results and returns the company to growth, we believe the valuation discount will begin to narrow between DXC and their peers. The upside potential for DXC is significant and could be multiples of their current share price over the next couple of years.”
2. Farfetch Limited (NYSE: FTCH)
Bill Miller has made substantial gains through his investments in Farfetch Limited (NYSE: FTCH). The firm first initiated a position in Farfetch during the fourth quarter of 2019 and sold out 66% of stake during the December quarter of 2020 to capitalize on a more than 480% share price rally. Despite that, Farfetch Limited is the second-largest stock holding of Miller Value Partners 13F portfolio, according to the latest filings.
In its Q4 investor letter, Miller Value Partners stated reasons for the significant share price gains of Farfetch stock price in 2020. Here is what Miller Value Partners said:
“Farfetch Ltd. (FTCH) continued its climb in the quarter, returning 152.7%. The company really took off following the announcement of a landmark global partnership with Alibaba, Richemont & Artemis. The deal gives FTCH access to Alibaba’s platform and its 757M customers while also starting new relationships with Richemont’s brands. The agreement will provide an infusion of $1.15B from their new partners to help them grow out the platform in China and beyond and aligning the incentives of all parties. Later in the quarter, Alibaba’s President Michael Evans joined the board of directors. The company also announced another strong earnings report. For the 3rd quarter, the company posted revenue of $437.7M versus consensus estimates of $369.8M. Gross Margins were above expectations at 48% against estimates of 45%. The result was the company had an Earnings Before Income, Taxes, Depreciation, and Amortization (EBITDA) loss of just $10M, versus expectations for a $22M EBITDA loss in the quarter. Gross merchandise value also beat expectations coming in up 60% versus expectations for 40-45%. The company guided to EBITDA profitability in the fourth quarter ahead of expectations.”
1. Uber Technologies (NYSE: UBER)
Bill Miller’s hedge fund initiated a huge call option position in Uber Technologies (NYSE: UBER) during the third quarter and reduced that position by 3% during the fourth quarter. It is the largest stock investment of Miller Value Partners valued at $266 million, according to the fourth quarter filings.
In its Q4 investor letter, Miller Value Partners stated reasons for their big investment in Uber Technologies. Here’s what the firm said:
“It was a busy quarter for Uber Technologies (UBER) who took off in the quarter following the passing of Proposition 22, their ballot initiative that allows them to classify their drivers as independent contractors and not employees. The company also reported 3Q results that was largely in-line with expectations. Adjusted net revenues of $2.81B was slightly below expectations of $2.82B with EBITDA of -$625M coming in slightly worse than expectations for -$623M. The company reiterated their expectation that they will reach EBITDA profitability at some point in 2021, as their Eats business continues to see strong growth as the pandemic continues. The company announced the sale of ATG, their self-driving car unit, to Aurora for $4B, while investing $400M in the business and holding a 26% share of the combined entity. This was followed by the announcement of the company selling Uber Elevate, their air taxi business, to Joby Aviation with Uber investing an additional $75M in Joby. The company’s acquisition of Postmates closed in the quarter and Mexico’s antitrust regulators approved Uber’s acquisition of Cornershop, the Latin American grocery delivery company. The company also announced a joint venture with SK Telecom, to create a South Korean taxi-share company investing $150M in the start-up.”
You can also take a peek at Billionaire Julian Robertson’s Top 10 Stocks and Billionaire Stan Druckenmiller’s Top 10 Stock Picks.
