WHEN: Today, Thursday, January 31, 2019
WHERE: CNBC’s “Squawk on the Street“— live from the TIGER 21 Conference in Boca Raton, FL
The following is the unofficial transcript of a CNBC EXCLUSIVE interview with Miller Value Partners CIO and Chairman Bill Miller and CNBC’s Brian Sullivan on CNBC’s “Squawk on the Street” (M-F 9AM – 11AM) today, Thursday, January 31st. The following is a link to video of the interview on CNBC.com: https://www.cnbc.com/video/2019/01/31/bill-miller-on-apple-amazon-more.html.
All references must be sourced to CNBC.
CARL QUINTANILLA: Let’s get over to our Brian Sullivan live at the TIGER 21 Conference in Florida sitting down with a big, big legend. Hey, Brian.
BRIAN SULLIVAN: Hey, Carl listen. It’s 65 degrees here in Boca Raton but somebody’s got to do it. So, you know, I was happy to suffer through this assignment. Bill Miller, great to see you in person. Thanks for joining us.
BILL MILLER: Great to be here.
BRIAN SULLIVAN: You have got to be — you’re smiling because, A) it is warm, but, B) you’re a big Facebook owner. Facebook is soaring. What do you think of the quarter, and are you adding to your Facebook position?
BILL MILLER: No, we’re not adding right now. We added in the 140s twice actually. Once, a year ago when Mark Zuckerberg was getting raked over the coals in front of Congress. And then again recently when the stock was again — suffering from a gloomy consensus, let’s call it, and trading around 14 to 15 times earnings. This is the worst quarter that Facebook has had in terms of revenue growth, up 30%. And, you know, 2.2 billion users. It’s hard to find fault with the economics of the business.
BRIAN SULLIVAN: Except that how much bigger can it get?
BILL MILLER: Well —
BRIAN SULLIVAN: How much growth is there?
BILL MILLER: Well, there’s not a lot of growth per say, and certainly in users, I think there’s still monetization of the users and monetization of Instagram and things like that. So, again, the company with that kind of global scope has an enormous moat around it and I think that’s – it’s going to be very tough – and with the new money being spent on security, it is going to be very tough for anybody to push them aside.
BRIAN SULLIVAN: You know, going into the commercial break, David Faber showed a chart of the best stocks this month. Xerox up 43% this month. GE up 38% this money. Okay, after the worst December since 1928, what do you make of these insane market and stock swings? Collapsing and then — is that a healthy market?
BILL MILLER: It’s a market that can be exploited. I think you can monetize the volatility in the market, which is what we try and do. There have been 23 corrections of 5% or more in the last ten years, so two per year. And corrections go deep enough to scare everybody out and also then the market — I guess market structure has been changed, in my opinion, by the combination of money in ETFs, — quant funds and risk parity products. And so they all tend to move together.
BRIAN SULLIVAN: Are they harmful?
BILL MILLER: They potentially are harmful. The late Jack Bogle, who — a friend of mine – you know, said that the ETF thing and the passive money is a potential threat. I don’t think it is now, but it could be down the road.
BRIAN SULLIVAN: We talk a lot with you about Amazon and Facebook. I want to ask you about a totally different name because we’re so concerned that housing is — I don’t want to say it’s collapsing, but it’s slowing down. One of your biggest positions is RH, Restoration Hardware. $4,000 sofas, Bill. What makes it attractive?
BILL MILLER: Well, part of why it’s attractive now is that they have kind of taken over the high end of that market with their 40,000 square foot stores. And so it’s — it’s a company that we started buying in the ’20s when Gary Friedman, the CEO, started buying a lot of stock. They bought back 50% of their shares last year and probably in an average cost of around $40 to $45. So it’s not as attractive at 130 as it was at 30 but it’s still a dominant company. The average furniture store in America is about 7,000 square feet.
BRIAN SULLIVAN: I’ll wrap it up with this. What’s the last, most exciting new stock that you’ve added?
BILL MILLER: Avon.
BRIAN SULLIVAN: Avon?
BILL MILLER: Avon.
BRIAN SULLIVAN: Avon?
BILL MILLER: Avon was at a 70-year low.
BRIAN SULLIVAN: AVP? We’re talking about the makeup company?
BILL MILLER: $1.59, or something like that, yes. Brand-new management, all up and down, a couple hundred million of free cash flow. The proper strategy now for the first time in years, if not decades. And we really think it’s a company that could be a ten-bagger in the next three five years.
BRIAN SULLIVAN: Avon is a ten-bagger?
BILL MILLER: Could be. Could be.
BRIAN SULLIVAN: A company that –
BILL MILLER: Coty offered 10 billion for the company I think in 2014 or ’15. It’s got an 800 million market cap right now.
BRIAN SULLIVAN: This is a company, you know, Bill — I don’t think it’s a, you know, TV, fake news to say there’s people who are worried about Avon’s long-term sustainability as a company.
BILL MILLER: Well, that’s pretty well reflected in the price of under $2 I think. But we think it’s a very interesting risk reward on Avon. And I think that — I won’t say worst case, but I’d say it’s going to be tough for you to lose money in the stock over the next few years given how much, you know, it’s down in the past couple of years alone.
BRIAN SULLIVAN: And you’re — Avon is moving right now. The stock is up 14% on your comments. Is this a long-term hold? You’re — listen, you’re a value guy, you’re a long-term guy, but even you would say ‘If I go from “x” to “y” and it’s this kind of a percentage move, I’ve got to rethink my position,’ no? How long would you hold at Avon?
BILL MILLER: We’d hold it as long as we think we can earn an excess rate of return by holding it.
BRIAN SULLIVAN: And still right now.
BILL MILLER: Oh, yeah. It was $2.50 I think about three or four months ago. So it’s kind of making a home here between the $1.75 and 2.25 level. If it breaks out around the $3 level it tells us the strategies are working. I think we’ll know by the end of the year.
BRIAN SULLIVAN: David Faber, I mean I know you’ve talked a lot about Avon, what do you think of this move? The bankers have got to be happy, or unhappy, but I don’t know.
DAVID FABER: By the way, we should tell Bill the stock is up 19% on, I think, in part on Mr. Miller’s comments right there. Of course I can remember when they were turning down a bid from Coty that they absolutely positively should have taken without a doubt. But Bill, I wanted to come back with you for a moment here on Amazon. I think we’re going to be hearing after the close. Obviously I remember you positive on the stock throughout, in the good and bad and particularly in some tough times where your opinion ended up, of course, being the correct one. What are you looking for after the bell? What should we be focused on overall in terms of both the earnings and on the conference call?
BILL MILLER: You know, it’s an interesting situation. I tend to focus on the advertising business and on AWS and then the mixed shift where the third-party sellers are now more than 50% of retail. So you’re not seeing the sales growth in retail that you use to see, but you’re seeing good margins. And I think also, you know, international is still losing money. And I think that’s — in the next couple of years, that will turn. But you know, Amazon is doing so many different things and it’s so dominant and it’s about 20% below its high. So I think it’s very attractive in here.
DAVID FABER: Why is it very attractive in here?
BILL MILLER: Because I think that the business itself on the top line is probably going to grow around 20% to 25% a year for the next at least three years. And so — and the margins should continue to expand. So if the valuation doesn’t change, and I don’t think the valuation should change, then in terms of enterprise value to EBITDA, price to sales, that kind of thing, then the stock will double in three years. And the market is not going to double in three years.
SARA EISEN: Hey, Bill. It’s Sara. I wanted to ask about Apple. I don’t think you own it in the fund but I’ve heard you talk about it in the past and view it favorably. We just came off an Apple quarter, which was well received by Wall Street but also showed that iPhone sales are declining. Is that a good bet after the big selloff that we saw from the last quarter?
BILL MILLER: Well, we sold — we had both bought and sold Apple well — I own Apple personally and have owned it for a long time. You know, it’s a– if you want a company with a fortress balance sheet that’s dominant, that is I would say safe, that generates 50 billion free cash flow, then Apple looks okay in here.
BRIAN SULLIVAN: Bill, and guys –I want to jump back in, because we had talked about Avon and you reference it, David referenced it as well that Coty, the consumer products cosmetics company, had made an $10 million bid. Just off-camera before we sat down, you told me that you started adding your — to Coty. Is that a new position for you, or are you adding to an existing position?
BILL MILLER: That’s a personal position of mine.
BRIAN SULLIVAN: Personal position of yours.
BILL MILLER: Yep. I started buying it around $8.
BRIAN SULLIVAN: Because that’s a stock down 50% in a 12-month period. Is that a similar story to Avon?
BILL MILLER: Coty is pretty highly leveraged. JAB, the– you know, the private equity firm–
BRIAN SULLIVAN: That’s buying everything.
BILL MILLER: — controls it. But they bought every share that was available in blocks around $8.50. The new CEO who just came in, he bought about $15 million worth of stock at 8.5, 7% yield on it. So I think most of the damage has been done.
BRIAN SULLIVAN: On Coty. Yeah, so you think most of the damage done has been done on Coty. But again, personal position for you, not in the funds at Miller Value Partners.
BILL MILLER: Correct.
BRIAN SULLIVAN: Alright, so we’ve got, Apple tonight, Amazon, Facebook, you’re a happy guy, Avon, stocks moving. Bill Miller, real pleasure to see you at the TIGER – we’ve got to stop meeting like this or maybe we don’t have to stop meeting like this. Bill, thank you very much.
BILL MILLER: Thanks very much.
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