Bill Miller: Tax plan will boost undervalued U.S. markets

Bill Miller, Legg Mason's highly-touted stock picker, believes that President Obama's tax cut plan will be a shot in the arm for U.S. stocks. Mr. Miller, chief executive officer at Legg Mason Capital Management, said he is bullish on stocks because of President Barack Obama's tax cut plan and the stimulus he believes that it will provide to the U.S. economy. In fact, U.S. stocks are undervalued by about 30%, he told attendees last night at the Reuters 2011 Investment Outlook Summit. Mr. Miller praised the President's compromise to extend the Bush tax cuts for two more years and implement a 2% employee payrolls tax cut. Those tax cuts could add between one half to three quarters of a percentage point to gross domestic product in 2011, he explained. “Until share prices climb higher, many investors will stay out of the stock market,” Mr. Miller said. “What people aren't paying enough attention to right now is that the U.S. is powerfully positioned relative to the rest of the world,” he added. “That is, the U.S. is following economic policies that are far superior.” As for the tax cuts, they are key for job creation and a boost for the stock market, said Mr. Miller , who added that the cuts would likely force the Federal Reserve to raise interest rates sooner than expected. Mr. Miller, who likes out-of-favor stocks, told attendees that large-cap financials and big tech companies should do well in 2011. He is bullish on four banks: Citigroup Inc, Bank of America, JP Morgan Chase and Wells Fargo. Additionally, Mr. Miller said Hewlett-Packard, Cisco Systems, Microsoft and Intel Corp are companies to watch in 2011. (Mr. Miller also revealed some other stock favorites in this one-on-one with Consuelo Mack.)