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Bill Miller Now a Fan of Tech, Financials

Wednesday, 29 Jul 2009 10:10 AM

By Ellen Chang

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Bill Miller, the value fund manager who beat the market for more than decade before falling on hard times in the slump, believes that financial and technology stocks will be the new market leaders.

In a quarterly report to fund shareholders, Miller said he sees a bull market ahead.

His Legg Mason Value Trust fund has increased by nearly 20 percent in 2009.

“Bull markets typically begin when the following four conditions are present: the economy is bottoming, profits are bottoming, the Fed is stimulating, and valuations are low,” Miller wrote in his letter, reported in The Wall Street Journal.

“That’s where we are now.”

Tech is a sector that shows promise because it “on average, has a great balance sheet, is flush with cash, and trades at a large discount to the market on a free cash flow yield basis,” he said.

Financial stocks have stood out during the rally, he said.

“Banks still face mounting credit losses for the next year or so, but that should not impede their performance,” he said.

Miller said that GDP numbers will be “considerably stronger” than predictions.

“The preponderance of the evidence supports the view that the worst has passed in the market and the economy. Clearly the extreme risk aversion that characterized the period from early October to early March is over, and absent some exogenous event or dramatic policy error, it is very unlikely to return.

“That has allowed almost all asset prices along the risk spectrum to rise, except Treasuries, a trend I expect to continue, since I think bargains abound in the U.S. stock market,” he said.

Kazuhiko Saito, chief analyst at Tokyo's Fujitomi Co Ltd, said investors are moving their funds to the stock market and are less wary of inflation, Reuters reported.

"Inflation is not being seen as a factor in the current market," he said.

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