NEW YORK (Money Magazine) -
Nearly every surface in Neal Miller's office is covered with magazines. "These just arrived in the past day and a half," says Miller, manager of Fidelity's New Millennium fund, as he clears a stack of two dozen from a chair.
| More from the Ultimate Investment Club
|
|
|
|
|
Among the new arrivals: Medical Lab Observer, India Today and Industrial Launderer. He reads more than 100 trade journals regularly, and recently clipped articles on how onshore drilling is making a comeback, retro fashion is out and Kashmiri beach resorts are booked solid. "The market is pretty efficient, so I have to catch trends before they bubble to the surface," he says.
Sometimes thinking differently is the best way to find market gems. We spoke with three champion outside-the-box thinkers -- Legg Mason's Bill Miller, Fidelity's Neal Miller and David Williams of Excelsior Value & Restructuring -- to find out what they're buying now.
Bill Miller - Discovering Japan
At Morningstar's annual conference this past June, Bill Miller, manager of Legg Mason's Value Trust (LMVTX) and Opportunity Trust (LMOPX), sent a message to attendees that was loud and clear. "The one word I'm going to give you," he told the audience, "is stocks, not bonds...and one stock in Japan, namely Sony."
| Source: Money magazine 10/2003 |
|
And if Miller was bullish about Sony a few months ago, he is even more enthusiastic today. Miller began looking at Japan earlier this year because stocks there were yielding three times as much as 10-year Japanese treasury bonds.
To Miller, that meant Japanese stocks were undervalued -- in most countries, bonds yield more than stocks. He began picking up Sony (SNE) shares at $26, near a seven-year low. The stock has hit $34.42, but he sees plenty of upside. Miller compares the Sony of today to IBM when Lou Gerstner took over.
"They are restructuring their business, with a new goal to go from an operating margin of 2.2 percent to 10 percent," he says. Right now, Sony's market value is a little more than half its $60 billion in sales. If the company hits its goal, the shares should be worth two times sales, or four times their current price.
Of course, anytime you read about Miller you'll hear about Amazon.com (AMZN). It's his largest holding, and he is one of the online merchant's biggest shareholders. And even though the stock has gained 139 percent this year, Miller remains a booster.
Sure, its P/E is more than three times that of Wal-Mart. But Miller says that Amazon is far more efficient and can be open 24 hours a day, everywhere, so it's worth more. "Wal-Mart spent $9 billion last year to expand its square footage 8 percent," he says. "Amazon will spend $30 million next year and increase revenue 30 percent."
Miller may be wedded to Amazon, but he's really hedging his tech exposure. With the Nasdaq up 39 percent since March, "if there's anywhere expectations are too high, it's in those stocks," he says. Nearly 30 percent of Opportunity Trust's portfolio is short the Nasdaq 100 (which, of course, includes Amazon, though it's only 1.1 percent of the index). "It's just an insurance bet," says Miller. "I'm not bearish on technology."
Neal Miller - Trend spotting
Neal Miller's Fidelity New Millennium (FMILX) fund is closed to new investors, but we can still profit from his famed trend spotting. Where has he been investing? QLogic (QLGC) was his largest holding as of June 30, the last time Fidelity listed the fund's positions.
Miller believes that in the aftermath of events like Sept. 11 and this year's blackout, companies will be eager to improve their document-retention systems. QLogic's computer chips boost the speed at which information can move around computer networks.
That speed means that companies can send data to storage facilities located far from their headquarters without slowing down their networks. At $51.80, the stock has a P/E of 36 (based on estimated 2004 earnings), but has been taking market share from competitors and beating expectations.
Another technology Miller says has potential is Global Positioning Systems, those gadgets that communicate with satellites to pinpoint your exact location. Out of 17 million cars sold in this country last year, Miller says only 300,000 had GPS devices, giving the market plenty of room to grow.
And consumers are willing to pay as much as 15 percent more for cars with GPS technology. His top pick in the area is Garmin (GRMN). The maker of GPS devices for airplanes, cars and hikers is projected to earn $1.61 a share this year, up 22 percent from a year ago. At $43.89, it has a P/E of 27.
David Williams - Playing it safe
David Williams manages Excelsior Value & Restructuring (UMBIX), so we asked him for one value pick and one restructuring play. He was happy to oblige. His top value idea is ACE Limited (ACE). He says shares of the Bermuda-based insurer, which gets two-thirds of its earnings from its property/casualty lines, are priced as if another big terrorist attack were imminent.
Barring the unexpected catastrophe, Williams says the stock is cheap and he expects it to earn $4.12 a share this year. At $32.77, the stock has a P/E of 8 based on that estimate -- below that of most insurers and less than half the S&P's P/E. Also, management has a good pedigree. Evan Greenberg, son of insurance mogul Maurice "Hank" Greenberg of AIG, is ACE's chief operating officer.
To fulfill his "restructuring" mandate, Williams seeks companies with new management and those that are selling off unprofitable units or dramatically lowering their debt. His favorite stock in this category is Ford (F).
Since taking over the reins two years ago, CEO William Clay Ford has been cutting costs by closing plants and discontinuing unprofitable models. It will take a while to turn Ford around, so Williams is buying its convertible preferred shares. They pay a higher yield than the stock (7.4 percent vs. 3.5 percent), so investors are paid to park their money while waiting for the car giant to get going again.
|
.
