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Miller Value CIO Likes Homebuilding Stocks

Specifically, the CIO at Miller Value favors a particular homebuilder for its low price-earnings multiple and its stock buybacks.
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Investment icon Bill Miller, chief investment officer of Miller Value Partners, likes homebuilder stocks, viewing them as undervalued.

There are “great opportunities in homebuilding,” Miller told CNBC. “Taylor Morrison  (TMHC)  is one of our big positions. It’s [trading] under four times this year’s earnings. They’re buying back stock with a 20% return on invested capital.”

Morningstar estimates Taylor Morrison’s forward price-earnings multiple as 7.8. After dropping 23% from Dec. 31 to Feb. 23, the stock has surged 20%. It recently traded at $32.43, up 7% from Tuesday.

Miller made his name at Legg Mason Value Fund, where he outperformed the S&P 500 for 15 consecutive years from 1991-2005.

As of Dec. 31, top holdings for Miller’s Opportunity Trust  (LMOPX) , in descending order, included retail/technology titan Amazon  (AMZN) , information technology company DXC Technology  (DXC) , oil producer Diamondback Energy  (FANG) , technology stalwart Alphabet  (GOOGL)  and social media giant Meta Platforms  (FB) .

Looking at Amazon, Morningstar analyst Dan Romanoff is bullish. He puts fair value at $4,100 for the Seattle tech and online-retail giant, 35% above a recent quote of $3,033.

“Amazon dominates its served markets, notably for e-commerce and cloud services,” he wrote in a commentary this month. 

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“It benefits from numerous competitive advantages and has emerged as the clear e-commerce leader, given its size and scale, which yield an unmatched selection of low-priced goods for consumers.”

E-commerce continues its strong growth, “with the company continuing to grind out market share gains despite its size,” Romanoff said.”

As for Diamondback, Morningstar analyst Dave Meats likes the stock but says it’s overvalued. “Diamondback's 2022 guidance showed more inflationary pressure than we were modeling, pushing our fair value estimate down to $124 from $132,” he wrote in a commentary last month. The stock recently traded at $137.82.

“However, the firm's disciplined zero-growth plan, maintaining oil volumes at fourth-quarter 2021 levels, and impressive capital return framework set the firm apart,” Meats said. 

“We think the good news is already priced in at the current level, but we would encourage shareholders to take advantage of pullbacks.”

When it comes to Alphabet, Morningstar analyst Ali Mogharabi puts fair value at $3,600, 34% above a recent quote of $2,691.

“While we expect slower revenue growth this year, we project double-digit growth in YouTube and cloud to continue,” he wrote in a commentary earlier this month.

“We have modeled lower margins in 2022 given Alphabet’s continuing aggressive investment in its cloud offerings. We foresee a return of margin expansion in 2023 due to the steady increase in Google’s cloud recurring revenue.”