Bill Miller: Countrywide Financial Is Worth $40/Share

From Bill Miller's Third Quarter 2007 letter (dated 11/2/07) to investors in Legg Mason Value Trust [LMVTX]:

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).

Comments

[deanfv]

He's talking his book. CFC is going BK, no doubt.

[JasonTX]

BK? What do you base that on? The CEO started the company in 1968. Why the hell would he let his company fall to pieces so quickly? You think he's a crook?

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.

[yourfilled]

oh my or my.
$40.00 bucks a share.
OK, traders.....buy out of the money calls and stay short.

[e-mail]

[yourfilled]

buy the call

[Rocker_JDB]

Yeah, normally I'm a fan of contrarian, value investing. But, B. Miller is trying to salvage a horrible position by, as others have noted, talking his book...speaking of book, let's see what book value for CFC is, when the next tsunami of ARM resets hits in 2008. He could average down to about 35 cents by then.

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.

[I Win]

The ironic thing about all of these comments is that Bill Miller has built his legacy on the backs of crowd-following lemmings like you. Five years from now, the story will be no different.

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.

[ForrestGumpInvestments]

If I was stuck with a 9% ownership postion in Countrywide and it represented 2% of my fund value I guess I would be compelled to argue that the stock was undervalued. Nice try Bill. There are two kinds of oats. I am afraid what you are selling is the oats that have already been through the horse.

[ForrestGumpInvestments]

If I was stuck with a 9% ownership postion in Countrywide and it represented 2% of my fund value I guess I would be compelled to argue that the stock was undervalued. Nice try Bill. There are two kinds of oats. I am afraid what you are selling is the oats that have already been through the horse.

[zen Man]

well since he didnt say WHEN he may be right. But that does not do much good NOW.

[bigcityloans]

Countrywide's stock will drop to 4 cents before it reaches $40.00 ... once its loan portfolio has been made transparent ... unless ... it is bought by Bank of America ... which I would guess is off the table now.

[wcvarones]

What a maroon!