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Bill Miller Likes Buffett’s Timing On Airlines, Talks Valeant (VRX)’s Free Cash Flow, Amazon (AMZN)’s Fate Under Trump

LMM Investments is a Baltimore-based hedge fund founded by Bill Miller, the famous value investor who is known for beating the S&P 500 15 years in a row. Legg Mason’s equity portfolio contained positions valued at $2.44 billion as of the end of the third quarter, up from $2.24 billion a quarter earlier. Miller recently gave an interview to CNBC, in which he talked about various stocks and his outlook on the economy. Mr. Miller thinks that the election of Donald Trump signals the end of the bull market that began in the 1980’s, and argued that people will soon start losing money in bonds.

In this article we’ll check out some of the comments on various stocks made by Bill Miller.

We follow over 700 hedge funds and other institutional investors and by analyzing their quarterly 13F filings, we identify stocks that they are collectively bullish on and develop investment strategies based on this data. One strategy that outperformed the market over the last year involves selecting the 100 best-performing funds and identifying the 30 mid-cap stocks that they are collectively the most bullish on. Over the past year, this strategy generated returns of 18%, topping the 8% gain registered by S&P 500 ETFs.

Bill Miller

Amazon Is Set for Growth

Bill Miller is bullish on Amazon.com, Inc. (NASDAQ:AMZN) and thinks the company will grow even faster under the presidency of Donald Trump. LMM owns a $207 million call position on the e-commerce company as of the end of the third quarter, as well as an $11.56 million long position. The value investor thinks that the competition between tech companies like Facebook, Google, and Amazon will increase. Miller rejected the notion that Amazon will be under threat of anti-trust actions under the new government. He mentioned that Amazon has 85% share in the eBooks market, mainly due to its low prices. Amazon’s stock has gained over 10% year-to-date. A total of 150 hedge funds tracked by Insider Monkey were bullish on Amazon.com, Inc. (NASDAQ:AMZN) at the end of the September quarter.

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Valeant Pharmaceuticals to Double in Two Years

Bill Miller thinks that Valeant Pharmaceuticals Intl Inc (NYSE:VRX) will survive its current crisis and that the company’s stock could double in the next two or three years. Miller, who sees Valeant as a slow-growth company, recommended that Valeant focus on free cash flows, something which the investor thinks pharmaceutical companies generally don’t focus on. Miller said that Valeant will “clean up” its business in the coming months, invest in R&D, and come up with a “completely different” business model. The investor also said he expects around $5 to $10 billion in disposals from Valeant in the next 12 months. Valeant’s stock has lost over 82% year-to-date. The beleaguered company is taking it on the chin since it came under fire for radically increasing the prices of its two main drugs. Bill Ackman‘s Pershing Square owns 21.59 million shares of Valeant Pharmaceuticals Intl Inc (NYSE:VRX) as of the end of the third quarter, while LMM owned 2.29 million shares.

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On the next page we will discuss three more stocks which have the attention of Bill Miller.

Miller Is Bullish on Airlines

Bill Miller is bullish on airlines, including Delta Air Lines, Inc. (NYSE:DAL) Hawaiian Holdings, Inc. (NASDAQ:HA), and Alaska Air Group, Inc. (NYSE:ALK). He said that he has made five-times his money from his investments in Southwest Airlines Co (NYSE:LUV), American Airlines, United Continental Holdings, and Delta Air Lines, Inc. (NYSE:DAL), and said that airline stocks are still undervalued and have the potential for high yields. Airlines are a commodity business according to Miller, and the internal incentive structures of the industry are based on return on capital. Miller added that Delta Air Lines, Inc. (NYSE:DAL) has 15% free cash flow yield, and suggested that it could be double its current price if it were a high-yield bond. GDP and unit growth are two of the main catalysts for airline stocks according to Miller, who expects both to increase at a greater rate. He said that Hawaiian Holdings, Inc. (NASDAQ:HA) is more expensive compared to other players in the industry, whereas Alaska Air Group, Inc. (NYSE:ALK) is expensive due to the quality of its business.

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Miller was also happy to see legendary investor Warren Buffett’s Berkshire Hathaway (NYSE:BRK.A) acquire airline stocks. Berkshire recently disclosed ownership of new stakes in American Airlines (NASDAQ:AAL), Delta Airlines (NYSE:DAL), and United Continental Holdings Inc. (NYSE:UAL). This is a departure from Warren Buffett’s long-held aversion to airline stocks. LMM also owned stakes in DAL, UAL, and AAL on September 30.

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Disclosure: None

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