Bill Miller's High Conviction New Stock Picks

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Includes: ABT, ACTV, CMA, CVS, CVX, FFIV, FITB, LUV, MRVL, MYGN, NAV, NLY, PG, SPY
by: Insider Monkey

Bill Miller is the chairman and chief investment officer of Legg Mason Capital Management, a subsidiary of the famous Legg Mason Inc. He is also the fund’s portfolio manager, a post where he began with great success but has been waning for the last several years.

It started off well. Through Miller’s management, Legg Mason Capital beat the S&P 500 (NYSEARCA:SPY) for 15 consecutive years, from 1991-2005. The industry at large was so impressed that Miller made the listing for BusinessWeek’s Best Fund Managers of 2006 and received numerous other accolades. But, then he peaked. Since 2006, his fund has lost almost 40%. However, he does seem to be improving somewhat.

Miller’s high conviction stock picks, that is the ones that he increased his positions significantly during second quarter, lost just 6.9% since the end of June, vs. 9.8% decline for the SPY. While it is still a loss, Miller is still beating the market. As the economy improves, Miller’s Legg Mason Capital may as well if his recent high conviction picks are any indication.

Company

Ticker

Value (x1000)

Return Since June

ABBOTT LABORATORIES

ABT

144181

-1%

MYRIAD GENETICS INC

MYGN

25250

-17%

CHEVRON CORP NEW

CVX

141688

-4%

PROCTER & GAMBLE CO

PG

211194

-0%

ANNALY CAPITAL MAN

NLY

66247

-3%

SOUTHWEST AIRLINES CO

LUV

31616

-29%

MARVELL TECHNOLOGY

MRVL

27021

-9%

FIFTH THIRD BANCORP

FITB

26683

-21%

C V S CAREMARK CORP

CVS

124324

-1%

F 5 NETWORKS INC

FFIV

47313

-29%

NAVISTAR INTL

NAV

23132

-32%

COMERICA INC

CMA

22634

-35%

ACTIVE NETWORK INC

ACTV

8016

-13%

Click to enlarge


Of Miller’s top 13 high conviction stocks, none had a positive return but 6 outperformed the market. Procter & Gamble Co (NYSE:PG) almost broke even, boasting a -0.22% return since the end of June. Miller had increased his position in the company by 142% last quarter to make it his fifth largest position. Berkshire Hathaway’s Warren Buffett is also a fan (check out Buffett’s top stock picks) as is D.E. Shaw, who increased his position in PG by 74% last quarter. Miller also did well in his positions in CVS Caremark (NYSE:CVS) and Abbott Laboratories (NYSE:ABT), losing just 1% on each position since the end of last quarter.

CVS is a new position for Miller. He bought in last quarter and bought in big. While it is not one of his top 20 positions, it is still quite significant. Several other hedge funds bought into CVS last quarter as well, like Israel Englander’s Catapult Capital Management (read about Catapult Capital here). Miller did not do as well on his other new high conviction positions, losing 35% in Commerce Inc (NYSE:CMA), 32% in Navistar Intl (NYSE:NAV) and 29% in F5 Networks Inc (NASDAQ:FFIV).

Miller also had several high conviction stocks in which he had increased his position significantly last quarter, only to be losing big now. For instance, Miller had increased his position by 145532% in Southwest Airlines Co (NYSE:LUV), but so far this quarter he has lost almost 29% on that position (Miller had only $25K in LUV at the end of the first quarter, he increased this position to $32 Million by boosting his shares in the company by more than 1400 times). In this case, several other funds bought in Southwest last quarter, including Tom Sandell of Sandell Asset Management and Robert Emil Zellner of Alpine Associates. Much of this speculation would have come after Southwest merged with Eritrean last quarter. Maybe the stock will turn around but with losses this big, redemption may be a while in the making.

Overall, we like Miller, but we like him best for his past performance. We would be very careful about imitating his entire portfolio but his best new ideas is a different story. We believe investors might be able to beat the market over the long-term by imitating his top new stock picks.


Disclosure: I am long SPY.