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It is very unlikely one can beat the market consistently. Bill Miller, however, managed to outperform the S&P 500 index for 15 consecutive years from 1991 to 2005. However, from 2005 to 2010, the fund underperformed the market except 2009. Founded in 1982, Legg Mason Capital Management is one of the subsidiaries of Legg Mason Global Asset Management, the 11th largest asset management firm in the world. Bill Miller was the chairman and CIO of Legg Mason Capital Management, but he recently announced that he will not be managing Legg Mason’s portfolio anymore. Miller joined Legg Mason in 1981 and was once named “The Greatest Money Manager of the 1990’s” by Money Magazine.

We wanted to take a look at Bill Miller’s last stock picks. Here is a list of top 20 positions in the 13F portfolio of Legg Mason (LM) at the end of September.

Company Name

Ticker

Value

Activity

APPLE INC

AAPL

227803

-11%

EBAY INC

EBAY

222596

2%

MICROSOFT CORP

MSFT

203871

-12%

PEPSICO INC

PEP

172298

9%

AMAZON COM INC

AMZN

171883

-18%

E M C CORP MA

EMC

169812

-6%

PROCTER & GAMBLE CO

PG

163289

-22%

BLACKROCK INC

BLK

160254

5%

CISCO SYSTEMS INC

CSCO

159194

-13%

UNITED CONTINENTAL

UAL

155154

-4%

CELGENE CORP

CELG

154405

-5%

PHILIP MORRIS

PM

148794

New

QUALCOMM INC

QCOM

147497

-4%

MEDTRONIC INC

MDT

147104

21%

ABBOTT LABORATORIES

ABT

141949

1%

JOHNSON & JOHNSON

JNJ

141125

-2%

INTL BUSINESS MACHS

IBM

132720

-25%

GENERAL ELECTRIC

GE

128935

-6%

CHEVRON CORP NEW

CVX

124547

-2%

WELLS FARGO & CO NEW

WFC

124454

-24%

During the third quarter, the portfolio value was reduced from $9.7 billion to $7.5 billion. The fund also invested in fewer positions. At the end of the second quarter, Legg Mason reported to own 372 different positions. The number was reduced to 365 at the end of the third quarter. The fund sold out many positions over the third quarter. For example, it had had over $100 million invested in Hewlett Packard Co (HPQ) as well as Bank of America Corp (BAC) at the end of June. In the latest 13F filing of Legg Mason, the fund did not disclose owning any shares of these two stocks. These two stocks had an average return of 5.5% since the end of September, versus 9.77% for SPY.

On the other hand, Legg Mason also opened some new positions. The biggest new position it opened in the third quarter was Philip Morris International Inc (PM). The fund initiated a brand new $149 million position in Philip Morris. PM returned 21.16% since the end of September, outperforming the market by over 11 percentage points. The tobacco company also pays a fat dividend to its shareholders: PM has a dividend yield of 4.10%. Jim Simons’ Renaissance Technologies also had nearly $400 million invested in PM.

Apple Inc (AAPL) was the top position in the 13F portfolio of Legg Mason. The fund invested more than $200 million in AAPL. Though AAPL underperformed the market in the fourth quarter (it returned 2.76%, versus 9.77% for SPY), the company’s earnings are expected to grow rapidly at around 21.75% per year in the next five years. Additionally, AAPL is very popular among hedge funds. Stephen Mandel, Ken Griffin, D. E. Shaw, Chase Coleman and many other well-known hedge fund managers were all bullish about AAPL, indicating some form of perceived value of the stock. Similarly, the other two positions in which Legg Mason had over $200 million invested, eBay Inc (EBAY) and Microsoft Corp (MSFT), also had lower than market returns so far since the end of September. But EBAY is expected to grow at over 11% over the next five years, making it look undervalued compared to its peers. MSFT is also estimated to grow at more than 11% in the next few years.

Other large cap stocks Legg Mason invested in include PepsiCo Inc (PEP), Amazon.com (AMZN), EMC Corp (EMC), Procter & Gamble (PG), Blackrock Inc (BLK), and Cisco Systems Inc (CSCO). The fund is generally bullish about the technology sector, which we believe is undervalued as a sector. We like Bill Miller, a value investor with a long term orientation. We encourage investors to focus on the top stock picks of Legg Mason and do a thorough research of these stocks for their portfolio.



Disclosure: I am long MSFT, PM.

Source: Bill Miller's Last Stock Picks