Bill & Bill's Excellent Bull Signal

 

The stars of 2002's financial news programs aren't the slick CEOs of the boom years -- they're the more circumspect money managers shepherding their flock away from the bear's grasp.

But circumspect doesn't mean pessimistic -- some have been almost outright bullish regarding the equity market. Of course, fund managers, as investors are well aware, have been wrong before. But when one of the most respected equity managers and one of the most respected bond fund managers sound similarly sanguine notes about stocks, even the most discouraged investor may find reason for hope.

Hopeful for 2003

Bill Miller, manager of the Legg Mason Value Trust fund, which is on track to beat the S&P 500 index for the 12th year in a row, has even higher hopes for next year's performance.

"We're positioned with zero cash and are looking at high-beta stocks, which will lead the recovery," Miller says. (Beta measures the volatility of a stock relative to the market. High-beta stocks would have greater highs and lower lows than the overall market.)

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The skipper is finding plenty of companies with P/Es south of 10 and dividend yields north of 5%.

Miller points to stocks like Nextel(NXTL Quote), which he bought early in the year for $11. By July, it had dropped to $2.50, but since then has jumped to $13 a share, and now represents 6% of the portfolio. "I'm not looking at technology stocks necessarily; I'm looking at high-beta stocks," he says, adding that right now just 2% of his fund's assets are in technology stocks. "But the next rally will be led by technology and telecommunications stocks, because they're high-beta, high-risk."

And as for the "risk" element, Miller thinks the corporate scandals that so rocked the technology industry have been fully priced into the overall market. "The market shrugged off Enron as a one-time event," he says. "But then there was Global Crossing, Tyco and Adelphia, and corporate governance became more of an issue. But those scandals have now been fully discounted."

Miller dismisses economic data and corporate statements when it comes to his view of the equity market's immediate future. "The way people think about the market now is backwards," he says. "Economic releases report on the past, and companies are only looking at what's happening now. But the market looks forward."

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