Billionaire Investor Bill Miller, Who Beat the S&P 500 Index for 15 Consecutive Years, Says Buy Amazon and Sell Tesla

The legendary value investor Bill Miller has built up quite the resume over decades of investing. While overseeing the Legg Mason Capital Management Value Trust fund, Miller beat the broader benchmark S&P 500 index for 15 consecutive years from 1991 to 2005.

Today, Miller is a billionaire. He also founded Miller Value Funds and continues to invest through the firms' various funds. Given his achievements, many market watchers pay attention to what he is buying and selling.

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Recently, in Patient Capital Management's quarterly update, where Miller is a minority owner and advisor to the firm, he said that he views the e-commerce giant Amazon (NASDAQ: AMZN) as a buy, while Tesla (NASDAQ: TSLA) as a sell. Here's why.

Image source: Getty Images.

Miller thinks Tesla is overvalued

The electric vehicle (EV) maker Tesla is the only stock in the "Magnificent Seven" that Miller seems to think is overvalued. He doesn't believe Tesla is a bad company. In fact, he specifically called it an "incredibly company" and praised CEO Elon Musk, calling him a genius.

But at the end of the day, Miller, a value investor who closely scrutinizes valuations, said Tesla simply is too expensive. "They're going to have to knock the cover off the ball in terms of self-driving cars and AI," he said.

Data by YCharts; PE = price to earnings.

So far this year, Tesla has done the opposite. Whether Musk's foray into politics has damaged the brand is hard to know for sure, but the results have not been good.

In the first quarter of the year, Tesla reported deliveries of 337,000, the lowest quarterly level seen in over two years. The company is also starting to face intense competition. The Chinese EV maker BYD has seemingly unseated it in China, where it controls over 30% of market share. BYD has developed cheaper models and better charging technology. Miller said: "Tesla's charging $8,000 for their self-driving system, and BYD has a self-driving system in a $9,000 car. BYD's cars, I think they're just better."

Much of Tesla's valuation seems to depend on future initiatives. In June, the company is expected to conduct a much-anticipated Robotaxi demonstration, featuring the company's unsupervised full self-driving (FSD) technology. Many doubts linger about that technology and the timeline Musk wants to roll it out.

But even if the Robotaxi demonstration goes well, Tesla still faces competition from smaller challengers like Pony AI and the Jeff Bezos-backed Slate Auto. I would agree with Miller's assessment that the valuation is baking in too much benefit from future initiatives, and does not sufficiently reflect the concern about issues in the core EV business.

Concerns about Amazon's exposure to China are overblown

Miller has quite the history with Amazon, considering he was an early investor in the e-commerce and tech behemoth. He has previously claimed to be "the largest personal owner of Amazon whose last name isn't Bezos."

Among his reasons to be bullish on Amazon are faith in CEO Andy Jassy, strong performance in divisions like Amazon Web Services (AWS) and logistics, the company's play into satellite internet, and the fact that Miller views concerns about the company's exposure to China to be overblown.

Given the trade spat between the U.S. and China, and the ensuing tariffs that each country has imposed on one another, investors have been concerned by stocks that have too much exposure to the world's second-biggest economy. Wedbush Securities has previously estimated that as much as 70% of goods sold through Amazon come from China.

Data by YCharts.

Still, given the resources at its disposal and market share in e-commerce, Amazon has some of the most advanced supply chain capabilities in the world. Jassy has previously said he thinks sellers will be able to pass higher costs on to borrowers.

He has also said more recently that the diversity of sellers Amazon has on its platform is an advantage because not all will raise prices; some may choose to keep prices as is to gain market share.

I think concerns about Amazon's exposure to China are warranted, but I also believe the company has the supply chain capabilities to weather the storm. Amazon has revenue diversity from the likes of AWS and advertising streams that have been performing well.

Assuming U.S. tariffs on China and China's tariffs on the U.S. eventually come down, Amazon does trade attractively at 30 times forward earnings, which is near the stock's five-year low (chart above). Even if the trade war between the U.S. and China lasts longer than expected, I expect Amazon can weather the storm, although earnings could take a temporary hit.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon and Tesla. The Motley Fool recommends BYD Company. The Motley Fool has a disclosure policy.