UPDATE 2-Legg Mason’s Miller: healthcare stocks to outperform

* Says after healthcare reform, cheap names in sector to
rise

* Says will not be surprised by 3-5 pct pullback in US mkt

* Says tech sector still cheap relative to history
(Adds more detail on Miller’s U.S. outlook)

By Parvathy Ullatil

HONG KONG, March 22 (BestGrowthStock) – Cheap U.S. healthcare
stocks should perform well in the next few months now that
legislative uncertainty about reform in the sector has been
removed, said Legg Mason Inc (LM.N: ) fund manager Bill Miller.

The U.S. House of Representatives on Sunday approved the
most sweeping healthcare overhaul in decades, expanding
insurance coverage to almost every American. [ID:nN20178881]

“The political benefits of the healthcare reform will come
first, and the more painful aspects such as higher taxes will
come later, so cheaper healthcare stocks will do better in the
next few months,” said Miller who oversees the $4.8 billion
Legg Mason Capital Management Value Trust.

Miller, who is the chairman and chief investment officer of
Boston-based Legg Mason, was speaking at a press conference in
Hong Kong on Monday. His views on the market have been closely
followed for years because he was the only manager in modern
times to beat the Standard and Poor’s 500 stock market index
(.SPX: ) for a record 15 straight years.

Miller said he still owned UnitedHealth Group Inc (UNH.N: ),
the largest health insurer by market value, and Aetna (AET.N: )
in his portfolio.

TECHNOLOGY, FINANCIALS FAVOURED

Miller said his other top pick, the information technology
sector, which makes up close to 28 percent of the investments
in his flagship fund, is trading at a very cheap level on a
historic basis.

The fund is invested in technology stocks such as IBM
(IBM.N: ), Hewlett-Packard (HPQ.N: ) and Cisco Systems (CSCO.O: )
which derive a significant portion of their revenues from
outside the United States.

The fund manager reduced its exposure to the sector in its
Value Trust from around 30-32 percent by the end of 2009 after
the sector rose over 60 percent last year, cutting its holdings
in most technology stocks except Microsoft Corp (MSFT.O: ) in
which it almost doubled its stake.

Miller is also bullish on big U.S. financials, such as
Goldman Sachs (GS.N: ), JP Morgan (JPM.N: ) and Wells Fargo
(WFC.N: ), which he expects will get stronger after the financial
crisis owing to less competition in the sector.

“Financials are profitable but still under-earning.
Earnings will grow dramatically this year,” said Miller.

Miller’s fund was burned in 2008 by its large holdings in
U.S. financial stocks, which tumbled during the global
financial crisis.

The Legg Mason Capital Management Value Trust shed more
than half its value in 2008 and staged a partial recovery in
2009, rebounding more than 40 percent as Miller’s call on the
economic recovery paid off.

“I could have retired at the end of ’07,” said Miller, when
asked on Monday what he could have done differently to dodge
the disastrous losses of 2008.

SHORT TERM CORRECTION, LONG TERM GAINS

Miller also said he would not be surprised to see a 3-5
percent pullback in U.S. markets after recent gains, although
he maintained the outlook was positive.

“The market was higher for 25 of the last 28 days, so it
won’t surprise me if we saw a 3-5 percent correction in the
short term given how strong the market has been,” he said.

Miller said concerns over the sovereign debt situation in
Europe, which prompted investors to take risky bets off the
table in recent months, will not derail the rally in the equity
markets in 2010.

Key indicators such as the LIBOR-OIS spread, the difference
between the London Interbank Offered Rate an the overnight
indexed swap, was at normal levels at present, suggesting there
are no systemic concerns over the debt problems in the euro
zone. The spread was very wide ahead of the subprime meltdown
in 2007-08.

“The U.S. markets are attractively priced both in the long
term and short term,” said Miller.

Stock Market Trading
(Writing by Parvathy Ullatil and Kevin Plumberg; Editing by
Chris Lewis and Lincoln Feast)

UPDATE 2-Legg Mason’s Miller: healthcare stocks to outperform