Money management legend Bill Miller, chief investment officer of Miller Value Partners, says there are a lot of unanswerable questions in the stock market.
No one knows when the Russia/Ukraine war will end, how high inflation will go and how many times the Federal Reserve will raise interest rates. No one knows whether the stock market rally that began last week will continue, Miller wrote in a commentary.
The S&P 500 has slid 6.2% year to date, but the market rebounded 8% from March 14 through March 21.
While we don’t know where the market is headed, Miller said he is confident some stocks are good buys. With stocks still down year to date, “I believe there are many good values in the market,” he said.
Miller points to “a strong U.S. economy with low unemployment, plentiful jobs, rising wages, the strongest real growth in many years, and a Fed that has begun to raise rates.”
The unemployment rate totaled 3.8% in February, average hourly earnings climbed 5.1% in the 12 months through February, and the economy grew 5.7% last year. Meanwhile, the Federal Reserve lifted its federal funds target rate by 25 basis points March 16.
Given all that, it’s likely that a shift has begun in market leadership to value stocks from growth stocks, which dominated for the last 10 years, Miller said.
Other attractive areas in his opinion are:
· “Energy, whose prices do not reflect oil even in the $70s, much less over $100 [U.S. oil recently traded at $113.72 a barrel];
· “Chinese stocks, whose valuations appear too low, particularly when the government is easing and says it wants to help the market;
· “Financials, which mostly benefit from rising rates;
· “Housing stocks, whose valuations in the low- to mid-single digits do not reflect even a modest continuation of the current fundamentals; as well as
· “Travel-related names, such as airlines and cruise ships, which should see years of strong demand due to robust consumer balance sheets and a solid economy.”
As for specific names, “Mega-cap tech leaders such as Amazon (AMZN) and Meta Platforms (FB) are also attractive,” Miller said. And you can probably find some “long-term bargains” by looking at stocks that have dropped 50% or more from their 52-week highs, he said.
