Toys R Us Rises, and Bill Miller Grins

The fund manager is a true believer in value -- but only time will tell if Toys R Us can live up to his AOL and Dell jewels.
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While many on Wall Street were thumbing their noses at

Toys R Us

(TOY)

after a poor Christmas season, Bill Miller was a buyer -- further evidence the

(LMVTX) - Get Report

Legg Mason Value Trust manager is a value investor after all.

The toy company's stock was popping Tuesday, up around 8% on news of a new online retailing strategy and a

toysrus.com

subsidiary. If that rise continues, Miller may again be unfairly accused of posing as a bargain-hunter playing fast and loose in high-priced growth stocks.

When you beat the growth-dominated

S&P 500

eight years in a row folks want to know how you did it. Especially when you run a value fund during an era when growth is king. Miller's $11.3 billion fund has returned 26.1% year to date and an average of 38.5% annually over the last five years, leaving its value peers in the dust.

For Miller, the key to these last two years has been a hearty helping of some of the fastest-moving stocks on Wall Street, like

America Online

(AOL)

and

Dell

(DELL) - Get Report

. Not exactly the value plays you would expect to find in a bargain-hunter's fund. But as Miller has often explained, the stocks weren't sizzlers when he bought them.

Miller first started buying AOL in 1996 at 15. It's split three times since then and is up more than 3,000%. He started loading up on Dell the same year, when the PC maker was still sporting a single-digit price-to-earnings ratio. It's now trading at 84 times forward earnings.

Lately, though, Miller's been cutting back on some of his highest flyers. It's not so much that his love affair with them has ended; it's just that they've finally gotten a little too pricey, even for him.

"We sold a chunk of AOL at 80 a month or two ago, another chunk at 160 and a chunk at 150," says Miller. The stock, which closed Monday at 156 1/2, still is the fund's largest position at about 14% of assets. That's "down from a peak in the low 20s" earlier in the year, says Miller.

He also shed some Dell shares "at 107

or 53 1/2 after the split back in February," he says.

In addition to buying Toys R Us, Miller has been filling holes in his portfolio with other unloved companies.

"We've been aggressively buying

Gateway

(GTW)

," he says. Miller calls the stock, selling at around 30 times forward earnings, "attractive."

In recent weeks Miller also has added to positions in

General Motors

(GM) - Get Report

and some financial services firms. "We bought a ton of

MGIC

(MTG) - Get Report

," a Milwaukee, Wis.-based insurance holding company, he says. He's also bulked up on

BankBoston

(BKB)

and

Washington Mutual

(WM) - Get Report

.

With plenty of cash flowing into the chart-topping fund, the manager says, "We are trying to buy the cheapest things we can in the portfolio." That includes

Storage Technology

(STK) - Get Report

, a top-10 holding at the end of March. Miller still has hopes for the beaten-down maker of data storage and retrieval systems despite the firm's recent warning that first-quarter profits would fall well short of analysts' estimates.

"We've been wrong about it so far," says Miller. "But I bought a ton on the break at 17, 18 a couple days ago," he said recently after the stock plunged to a 52-week low on the earnings news.

Clearly a bold strategy, but one that's placed Miller in the right place at the right time for the last eight years.