Legg Mason Capital Management’s chairman and chief investment officer Bill Miller believes that - currently - U.S. stocks are cheap based on valuation and prices. He thinks the S&P 500 could rise as much as 15% this year. He advises investors to take advantage of U.S. stocks, especially those in the large-cap market.
For this year, Miller’s favorite areas are: Financials, healthcare and technology. From a report in Trustnet:
Miller thinks that investors need to bite the bullet and increase their exposure to U.S. equities before they miss out on attractive valuations.
He explained: “Ironically, most investors wait for reassurance in the form of higher prices as the green light to invest. We believe now is the time to for investors to focus on the valuation and prices available in the U.S.”
He says that the state of the U.S. economy is far more promising than many give it credit.
“Profit margins are at record levels, and corporate balance sheets are very strong, yet stocks languish below where they were in late August 2008, and that was hardly a bull market,” he said.
“The economy is expanding, liquidity is ample, inflation is under control, corporate profits are growing and are set to pass their all time high, nominal GDP is at its all time high and real GDP will have fully recovered to its all time high within a quarter.”
Miller says that financials are especially cheap at current levels. He believes that they will be a key driver of incremental growth over the next 12 months and could drive as much as 25% of the earnings for the S&P 500. The Legg Mason U.S. Equity Fund has 25% of portfolio assets in financials with Capital One (COF) and Citigroup (C) among the top 10 holdings.
I agree with Bill’s thoughts. Some of the U.S. banks are attractive at current prices and investors can add them selectively. Large U.S. banks are in a much better than their European peers. Last year the KBW Bank Index outperformed the Euro Stoxx Banks Index. With most of the U.S. banks in solid footing and with some expected to raise dividends they should outperform this year. However I would not allocate 25% of a portfolio’s assets to financials.
Some U.S. large-caps with high exposure to emerging markets are listed here.
Disclosure: No positions.