Ideas are the lifeblood of our business. One of my dad’s favorite traditions from his decades at Legg Mason Capital Management was the Stock Contest, which arose from his mentor Ernie Kiehne, who sent out a “Thanksgiving List” every year to the Legg Mason brokers. The list outlined the top stock ideas from Ernie and my dad for the year ahead. While we couldn’t locate records from that era, my dad tells me the picks often did quite well, and the contest was closely followed within the firm.

We are continuing the annual idea-generation tradition at Miller Value Partners. Each year, all team members submit ten ideas aimed at winning the contest, and they get a meaningful bonus based on how their ideas do on an equal-weighted basis over the next twelve months with no trading or closing of positions allowed.

The annual results tend to be volatile, as you might expect from contestants swinging for the fences. 2022 saw below-market negative returns on average. In 2023, six of the eight submissions outperformed the market, with an average return of 58.3%, more than double the S&P 500’s 26.3%, with the remaining two averaging 20%.

The reason we do this is simple — we have really smart team members, and we want to encourage them to generate big ideas on a riskless basis with a real reward on the line. Many people overweight personal history when evaluating new ideas instead of considering the merits of the idea on a standalone basis, and we want to encourage team members to submit their best ideas for review.

Clearly, there is no shortage of discrepancies between managing real money and the contest’s idea submission freeroll. The most obvious difference is that the only downside to a mistake is foregone compensation, instead of a dent in the nest egg with real money. The rules also prohibit any changes as events develop. Still, we want to surface big ideas that could merit consideration in the real world.

With that preamble and the caveat that the artificial parameters of the contest permit contestants to disregard risk, below are my personal submissions to this year’s contest1. To be clear, my picks are meant to illustrate how one of our favorite firm traditions works – they are not recommendations. For more information about our firm, please contact David Yazdan at [email protected].

  • STLA – Close to breaking out to new highs while trading at 1.8x EV/EBIT2; I like the price even at $30-35
  • Bitcoin – Potential paradigm shift + miner subsidy halving projected in a few months
  • MSTR – Halving + capital allocation math
  • BLDR – I see it as the “AMZN of homebuilding” but at a 10% FCF3 yield, and I see it becoming even more integral to US homebuilding
  • BFH – trades at 2.5x earnings and paying down debt even though business plan is working; stock was 3x current price 3 years ago
  • BCC – starts with a great letter 🙂 ; also close to breaking out to new highs with a double-digit FCF yield and no debt
  • T – 16% FCF yield trading at big relative valuation discount historically to the S&P 500; paying down debt as capex needs fall; In my mind, why own a utility over this?!
  • CROX – should continue to generate cash and pay down debt from HeyDude deal; fair value likely 50% higher than current price in my opinion
  • WIRE – good cash generation with no debt and highly aligned management team that has been buying back stock
  • QUAD – microcap with good FCF and is transitioning to a marketing services firm