Bill Miller: U.S. Stocks Are Attractive Based On Valuation

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Legg Mason Capital Management’s chairman and chief investment officer Bill Miller believes that currently U.S. stocks are cheap based on valuation and prices. He thinks the S&P 500 could rise as much as 15% this year. He advises investors to take advantage of U.S. stocks especially those in the large-cap market.

For this year, Miller’s favorite areas are: financials, healthcare and technology. From a report in Trustnet:

Miller thinks that investors need to bite the bullet and increase their exposure to US equities before they miss out on attractive valuations.

He explained: “Ironically, most investors wait for reassurance in the form of higher prices as the green light to invest. We believe now is the time to for investors to focus on the valuation and prices available in the US.”

He says that the state of the US economy is far more promising than many give it credit.

“Profit margins are at record levels, and corporate balance sheets are very strong, yet stocks languish below where they were in late August 2008, and that was hardly a bull market,” he said.

“The economy is expanding, liquidity is ample, inflation is under control, corporate profits are growing and are set to pass their all time high, nominal GDP is at its all time high and real GDP will have fully recovered to its all time high within a quarter.”

Miller says that financials are especially cheap at current levels. He believes that they will be a key driver of incremental growth over the next 12 months and could drive as much as 25% of the earnings for the S&P 500. The Legg Mason US Equity Fund has 25% of portfolio assets in financials with Capital One (COF) and Citigroup(C) among the top 10 holdings.

Source: via Trustnet

I agree with Bill’s thoughts. Some of the U.S. banks are attractive at current prices and investors can add them selectively. Large U.S. banks are in a much better than their European peers. Last year the KBW Bank Index outperformed the Euro Stoxx Banks Index. With most of the U.S. banks in solid footing and with some expected to raise dividends they should outperform this year as well. However I would not allocate 25% of a portfolio’s assets to financials.

Some U.S. large-caps with high exposure to emerging markets are listed here.

Related ETFs:
SPDR S&P 500 ETF (SPY)
iShares S&P 500 Index Fund (IVV)
SPDR KBW Bank ETF (KBE)

Disclosure: No Positions

The Top 10 Most Widely Held ADRs

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The top 10 widely held ADRs by institutions as measured by ownership value as of December 31, 2010 are listed below in descending order:

1.Name: America Movil (AMX)
Sector: Telecom
Country: Mexico

2.Name: Teva Pharmaceuticals (TEVA)
Sector: Generic Drugs
Country: Israel

3.Name: UBS AG (UBS)
Sector: Financial Services
Country: Switzerland

4.Name: VALE SA (VALE)
Sector: Mining
Country: Brazil

5.Name: VALE SA – Preferred (VALE.P)
Sector: Mining
Country: Brazil

6.Name: Baidu (BIDU)
Sector: Internet
Country: China

7.Name: Petrobras (PBR)
Sector: Integrated Oil
Country: Brazil

8.Name: Petrobras – Preferred (PBR.A)
Sector: Integrated Oil
Country: Brazil

9.Name: Itau Unibanco (ITUB)
Sector: Banking
Country: Brazil

10.Name: Vodafone (VOD)
Sector: Telecom
Country: UK

Mexican telecom services provider America Movil is the most-owned ADR. 690 institutional investors held 496 million shares with a value of $28 billion at the end of last year. All the companies noted above are in emerging markets except Vodafone and UBS AG.

Disclosure: Long PBR, ITUB

15 U.S. Electric Utilities Paying Over 5% Dividends

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Charlotte-NC, based Duke Energy (DUK) has announced a deal to buy Progress Energy Inc (PGN) for $13.7 billion in an all-stock transaction. The combined company to be called Duke Energy Corp would be the largest utility in the U.S. with about 7.1 million customers in the states of Florida, North Carolina, South Carolina, Indiana, Kentucky and Ohio.

Back in 2005 Duke Energy acquired Cincinnati, OH-based Cinergy for $9.0 billion in stock to expand its business in the Midwest.

From a Reuters report:

Duke said Progress Energy shareholders would receive 2.6125 shares of common stock of Duke Energy for each share held, or $46.48 per share, representing a 4 percent premium to the stock’s Friday close on the New York Stock Exchange.

Duke Energy said it also will assume about $12.2 billion in Progress Energy’s debt. The company also expects to effect a reverse stock split immediately prior to closing.

The electric utility industry in the U.S. is highly regulated and is very competitive. These companies are the favorites of long-term and income investors as they tend to have slow and steady growth with high and consistent dividend yields. The table below lists 15 electric utilities paying dividends of over 5%:

[TABLE=871]

Disclosure: Long DUK, NI

17 Regional Bank Stocks Offer Investment Opportunities

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Many of the small and regional U.S. banks trade on the NASDAQ market. In the past few years some of these banks have disappeared after they were shutdown by regulators or taken over by competitors. After TARP, many of the survivors have cleaned up their balance-sheets and are slowly recovering to attain pre-crisis levels. While this process may take a few years, it may be time for investors to nibble at some of the survivors as prices look attractive at current levels.

To identify some of the bank stocks for potential investment, I ran the stock screener with the following criteria:

1. Stocks must trade on the NASDAQ
2. Market cap must be >= $2B

The screen resulted in the following stocks:

[TABLE=872]

Disclosure: FITB

Five Foreign Electric Utilities To Consider

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Five foreign electric utility ADRs trading on the OTC markets is listed in the table below:

[TABLE=869]

CLP Holdings Limited(CLPHY) is a Hong Kong-based electric utility with operations in China, Taiwan, Australia, India and Southeast Asia. Since the credit crisis the stock has recovered nicely and closed near its 5-year high of about $8.5o on Friday.

Among the four European utilities mentioned above, E.ON and RWE AG are two of the largest utilities in Germany. International Power plc (IPRPY) is a UK-based electric utility with operations in many countries.

Disclosure: Long EONGY