Bill Miller's simple plan for Citi

Bill Miller thnks Citigroup should hire someone with a similar management style to HP's Mark Hurd to be its new CEO.

NEW YORK (CNNMoney.com) -- Bill Miller, the legendary Legg Mason Value Trust fund manager, owns shares of Citigroup, the embattled financial services giant that is looking for a new chief executive officer. And Miller has a suggestion about the type of person that the bank should hire to replace the ousted Charles Prince.

He said the bank should find someone who has a similar management style to Hewlett-Packard CEO Mark Hurd. Hurd replaced Carly Fiorina in 2005 and has led a dramatic turnaround at HP, mainly by cutting costs and focusing the computer company on what it does best.

In other words, Miller said he does not want to see Citigroup (Charts, Fortune 500) bring in someone who would have a radically different vision for the company, even though it has been hit hard by the subprime mortgage crisis.

"I would like someone to run Citi like the way that Hurd saw HP - someone to come in and simplify the processes. That's key. Someone who would approach Citi that way would be great," he said. "Citi doesn't need a major strategic overhaul."

Miller, who also owns shares of HP (Charts, Fortune 500), made the remarks at Legg Mason's annual year-end investment symposium in New York.

He added that he thought that the job that JPMorgan Chase (Charts, Fortune 500) CEO Jamie Dimon was doing at that bank could be a model for the type of leader Citi needed.

Miller also owns shares of JPMorgan Chase. That bank has not suffered nearly as much as others in the wake of this year's credit crunch. As such, its stock has held up much better than Citi. Shares are down just 3.6 percent this year compared to a nearly 40 percent decline for Citi.

Miller's fund is currently lagging the broader market. If it fails to beat the S&P 500 this year, it would mark the second year in a row that Legg Mason Value Trust has underperformed the benchmark index after beating it for 15 consecutive years.

Nonetheless, Miller is still widely acknowledged as one of the top stock pickers of the past two decades. As such, his words carry a lot of weight on Wall Street.

In addition to his remarks about Citigroup's management shake-up, Miller reiterated that he thinks financial stocks are due for a rebound next year. He noted that many banks are trading at valuations below the levels they were at in 1990, the last time a major banking and credit crisis was roiling the financial markets.

Miller said that even though banks may report more writedowns in the next few quarters, the worst might be priced into financial stocks already. He pointed out that, in 1991, many bank stocks rallied sharply even as the institutions were still reporting bad news.

"There is an assumption that there is a relationship between news flow and fundamentals," he said. "But you can have several more quarters of write-offs and see the stocks rise. The question is how much of the news is priced in."

And Miller argues that since the dividend yields for the most beaten down banks are substantially higher than that of 10-year Treasury notes, this is a sign that investors clearly are already factoring in a lot of risks in bank stocks.

Citigroup, for example, has a dividend that yields 6.5 percent while the yield on the 10-year is hovering around 3.9 percent.

"It's crazy to get an almost 7 percent yield on Citi and less than 4 percent in Treasurys," Miller said. "There is no reason to own Treasurys when you can get this kind of yield from financials."

Miller has been criticized by some investors for not owning shares in hot momentum areas, particularly oil stocks. But Miller said it would be "unbelievable" to expect that the same types of stocks that have led the markets in recent years - namely energy, industrials and basic materials - could continue to do so in the face of a potential global economic slowdown.

That said, Miller admitted that he does finally have a small stake - about 0.2 percent of the fund's assets - in one of the oil companies after shunning them for the past few years. He now owns Exxon Mobil (Charts, Fortune 500).

But make no mistake. Miller is not shifting his investment strategy just because of two off-years. He said that the reason he owns Exxon Mobil is not because he's making a bet on oil prices, but because the company is a relatively inexpensive multinational mega-cap stock that should benefit from a weak dollar.

Miller said he still sees the most value in the areas that have been hurt the most this year: banks and retailers. To that end, he said that Sears Holdings (Charts, Fortune 500), which he owns, is cheap.