Bill Miller: Legg Mason Value Trust

What's the manager who has beaten the Standard & Poor's 500-stock index for the last 15 years buying these days? Bill Miller has been scooping up technology stocks for the first time since 1995 for the Legg Mason Value Trust (LMVTX). He recently added Dell (DELL) and Hewlett-Packard (HPQ) to the portfolio. "We think they're as cheap as they've been since '95," he says.


  For the fourth year in a row, the 56-year-old Miller gets the Standard & Poor's/BusinessWeek's Excellence in Fund Management Award. His fund has a five-year annualized return of 4.5% for 2001-2005, the measurement period for this year's awards. (If that sounds lame, remember the S&P 500 was just about flat in the same period.) So far in 2006, Legg Mason Value Trust is lagging behind the market and other large-cap blend funds.

One of the reasons, he says, is weakness in Internet stocks. He owns Google (GOOG), eBay (EBAY), (AMZN), Expedia (EXPE), IAC/InterActiveCorp (IACI), and Yahoo! (YHOO). "We think they are ready to turn," he says, because fundamentals are strong and valuations are attractive. Plus, he notes, in the last few years, Net stocks tended to be weak in the first quarter and then strong in the second quarter.


  Miller also has a large weighting in managed-care stocks like UnitedHealth Group (UNH), Aetna (AET), and Health Net (HNT), which have lagged the market on the perception that growth is slowing. The manager also blames his fund's underperformance because it doesn't own energy stocks, which continue to do fairly well along with the high price of crude oil.

Along with tech, Miller is also bullish on homebuilders, and has bought Centex (CTX), Pulte (PHM), Ryland (RYL), and Beazer (BZH). "Builders are just too cheap at six times earnings, even with housing weakening," he says. Still, one of his favorite top holdings continues to be Eastman Kodak (EK), given his view that the photography company "is in the midst of a broad transformation to a digital company" (see BW Online, 1/31/06, "Kodak's Comeback: Still Undeveloped").

Overall, Miller anticipates that the market will rally once the Federal Reserve ends its campaign of raising interest rates. When that happens, he predicts big cap and tech names will take the lead. "That's where the valuations are most attractive," he says. If he's right, he's positioned to beat the market once again.

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