Bill Miller: Countrywide Financial Is Worth $40/Share 11 comments
Bill Miller
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One of the enduring features of the findings in behavioral psychology as it applies to finance, a subject I have discussed many times over the years, is the almost complete inability of those who are aware of them to actually apply them... The recent precipitous decline in financial stocks, especially those related to housing, which sent Countrywide Financial (CFC) to $12 last week, and led to 20 to 30% drops in financial guarantors in a day or so -- after they had already dropped between 25 and 50% this year -- is a case in point.
After falling 20% in a only a few days on no news, and this after being down 50% for the year, CFC rallied over 30% in one day once they reported their results and indicated they would be profitable for the 4th quarter and expect to earn a reasonable return on equity of 10-15% for all of 2008. The price action on both sides was driven by emotion -- first fear, then relief -- and was hardly the result of a careful analysis of Countrywide's long term business value. That, by the way, we think is in the $40's compared to its current price of about $14-15.
Bill Miller's fund is long CFC.
Miller's full letter is available via Legg Mason's site (.pdf).
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This article has 11 comments:
You're drinking the kool-aid like tons of other people that just need a direction to point your finger. The housing market was bound to burst. Foreclosures were bound to happen with brokers making bad loans to people without explaining what would happen when they DID come due.
Get real, no doubt.
$40.00 bucks a share.
OK, traders.....buy out of the money calls and stay short.
yourfilled@yahoo.com
Miller is right about one thing though: Tech is going to meet a bloody end sooner rather than later, as four stocks cannot lead an entire index forever. Four horsemen meet glue factory.
Also, all fund managers should believe in, and talk, their books. Their job is to buy undervalued stocks that they believe in. Anyone who expects a fund manager to badmouth their positions doesn't understand what a mutual fund is.