Countrywide Financial Enters Bill Miller’s Wheelhouse

by StockJockey

Monday, March 10, 2008 - 12:23 pm

Bill Miller must be thrilled about the buying opportunity in Countrywide Financial. He has been buying all the way down....and with new lows today, another opportunity to back up the truck is presenting itself:

Miller began buying shares of Countrywide in 2004 - well before the mortgage meltdown sent the highflying lender’s stock plummeting (from $40 to $4) last year. As he’s done successfully in the past with falling stocks he likes (Amazon (AMZN, Fortune 500), for example ), Miller decided to double down. In the fall he bought Countrywide aggressively.

On Jan. 11, Bank of America made a $4 billion all-stock takeover bid for Countrywide. (BofA valued each share at $7.16.) Countrywide’s board has approved the offer. But Miller questions conventional wisdom that the company can’t survive on its own. “What you have is still the nation’s largest mortgage originator and the largest mortgage servicer with a $1.5 trillion portfolio that’s easily salable,” he says. “The housing market is going to get better. When it does, Countrywide will be in a great position because so much of the competition has disappeared.”

Not that he’s necessarily against a merger, either. Legg Mason was already Countrywide’s largest shareholder at the time of the bid, and Miller has since raised his firm’s combined stake in the lender from 11.8% to 14.9%. He says the investment is a win-win. “If the deal goes through, we acquire Bank of America shares at a very attractive discount,” he says. “If the deal gets turned down, it’s because shareholders believe they can get a lot more value if the company remains independent.” He hasn’t yet said if he’ll vote to approve BofA’s offer. Fortune

A puff piece in Fortune clearly shows that the media continues to give Bill the benefit of the doubt. Unfortunately redemptions continue to roll in, to the tune of about $10 million a day based on recent withdrawals.

Miller is bottom decile against his peers for every times period except the past 10-years, and any one else sporting these kind of numbers would have been fired by now. An acceleration in redemptions could really begin to show up in Miller’s numbers as he is forced to liquidate positions against his will. No doubt some of that has been going on already.

Mr. Market always takes away the money at inopportune times. The recent declines on Google and Amazon.com are adding to Miller’s pain.

Today Countrywide finds itself in the news again, and Bill is finding himself down 20% year-to-date. These performance numbers, through last Friday, are just ugly.

Adam Lashinsky thinks Miller is fighting back. Great piece, if he would have run it on April Fools Day.

Can it get worse? Even Miller’s favorite speculative stock, MannKind Corp., is blowing up today. LMM LLC is a Legg subsidiary, and is among the largest shareholders.

Bill Miller fights back
Fortune
-----------------------------------------------------------------------------------------------------------------------
The content contained represent the opinions of 1440 Wall Street. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author.