Doug French
New York, NY - http://

Doug French is the former managing editor of Portfolio Strategist, Smith Barney's weekly report on equity research.

Bill Miller, the stock-picking wizard behind the Legg Mason Value Trust Fund that has outperformed the S&P 500 index for 15 -- yes, fifteen -- consecutive years, is finally eating a little exhaust. This year, the 500-stock index (which will likely finish up more than 14% year-to-date) will outdistance Miller's fund by a wide margin, thanks to the fund's precipitous summer swoon.

Concerns are mounting that Miller, whose fund's sheer size is limiting its flexibility, might have reached the end of the golden path. Investors can't help but overwhelm a good thing, and Miller's success with contrarian plays has garnered so much attention that whatever he does can convert contrarianism into mainstreamism. He made some bold moves in tech bellwethers Yahoo! Inc. (NASDAQ: YHOO), eBay Inc. (NASDAQ: EBAY), and Amazon.com Inc. (NASDAQ: AMZN) that didn't play out, and he placed a lot of faith in homebuilders when the softening housing market sent many to the cashier.

But most investors who've ridden this far with him are reluctant to jump off the gravy after one poor year (which, really, was only a poor four months). The fund has outperformed the S&P's torrid run since August, and many of Miller's current holdings -- such as UnitedHealth Group Inc. (NYSE: UNH), Aetna Inc. (NYSE: AET), KB Home (NYSE: KBH), and Pulte Homes Inc. (NYSE: PHM) -- seem poised to rebound from their lower valuations and enjoy a solid '07.

Too much is being made of the end of his 15-year streak. It's an abstract idea based on an arbitrary 12-month cycle. Miller has a basket of goodies and a boatload of momentum heading into the new year. Anyone who cashes out on him now is nuts.

Earlier today, shares of Citigroup (NYSE: C) poked through their all-time high of $55.21 per share, largely reacting to the upgrade of the shares to "buy" from "neutral" by Merrill Lynch analyst Guy Moszkowski. In his call note, Moszkowski wrote that the shares are still cheap, despite their recent spurt, for several reasons:

• greater anticipated revenue growth, due in part to a favorable bond market and to initiatives launched both in the U.S. and abroad
• new COO Bob Druskin, who will likely act quickly to address cost-management
• Citi's assurance that no new domestic acquisitions are planned (because, in Moszkowski's view, international acquisitions will likely pay off better)

Overall, Moszkowski believes that CEO Charles Prince's policies are effectively reversing some of the downward trends that led to several analyst downgrades earlier this year. It merits noting that Moszkowski was once a finance analyst at Citigroup's Smith Barney, so perhaps he knows what he's talking about.

Earlier today, Goldman Sachs Group, Inc. (NYSE:GS) reported that it raked in a whopping $9.34 billion in 2006, a record-high in the history of organized finance. The company plans to pay out $16.5 billion of that to its employees, to the tune of $622,000 per person. Goldman's fiscal fourth quarter saw profits increase 93% year-over-year, to $3.16 billion, or $6.59 per share, well above the consensus estimate of $6.36. (You can read more about the numbers here.)

Goldman's record year could signal similar results from the other investment banks set to announce their earnings over the next two weeks, and the Times article goes on to describe the incredible economic boost these numbers will give downtown Manhattan. Purveyors of high-end goods and services are rubbing their hands for a very merry holiday season.

This news is even more striking when you consider that Doug Kass over at TheStreet.com lists Goldman going private as a possible (if unlikely) surprise for 2007. You have to give credit where credit is due: If Goldman is set to leave us, it sure went out with a bang.

The New York Times reports that Hewlett-Packard (NYSE: HPQ) will pay $14.5 million to settle the lawsuit brought by the state of California alleging that H-P used unlawful channels to investigate the phone activity of its board members.

As is the case in most of these situations, there will be no finding of liability against Hewlett-Packard. And most of the money ($13.5 million) will be used to establish a fund to be used to investigate media piracy (movies and music) and intellectual-property theft.

Is this a big deal? From a principled standpoint, sure. And investors will be happy to see a sign of greater stability on the board since Carly Fiorina's ouster almost two years ago. Monetarily, though, it's a drop in the bucket. As the article reports, H-P reaped almost $92 billion in revenue in FY06, so the magnitude of the settlement amounts to what the company earns in 83 minutes.

The New York Times Company (NYSE:NYT) CEO Janet Robinson today asserted that the Ochs-Sulzberger family, which owns 20% of the company, has no plans to change its dual-class stock structure. Only the family could act to change the structure, and Ms. Robinson says such a move is not in its plans.

The structure was created before the company went public in 1969 to protect the paper's "journalistic independence and integrity," especially during times of "stress and change." Stress and change are prominent buzzwords for many print media companies, which are looking to the Internet as a way to stave off slowing ad revenue growth.

The price of NYT class 'A' shares has drifted steadily downward for the past three years. Despite some recent traction, major stockholder Morgan Stanley (NYSE:MS) Investment Management, which the Times says owns 7.7% of the company, has proposed changing the structure. The family is holding firm for now, but there might be some harsh words at next year's annual meeting.

According to The New York Times, over the last two decades Home Depot (NYSE: HD) has misrepresented the date of some stock option grants in order to reduce the strike price. This is all well and good for the managers, who profit from the practice, but it makes the accountants look pretty bad. It also means that the home retailer has $200 million in expenses that had not previously been announced.

Late yesterday afternoon, Home Depot acknowledged that it has "routinely" backdated grant dates for employees "at all levels of the company." It's never good news to hear that your company owes more than it's telling you, but it's also important to note that backdating is hardly uncommon. The Times reports that "at least 79 companies have announced they must restate previously reported financial results, and more than 60 executives and directors at companies under investigation have left their jobs."

HD shares fell by 1.2% on the news in late-afternoon trading, and they're down another 1% today with moderately high volume.

The Boeing Company (NYSE:BA) today reasserted that the test-flight schedule for the company's soon-to-be released 787 Dreamliner will remain as planned. It will have its first test flight in the summer of 2007 and be delivered, on time, during the following year. Scott Carson, the chief of Boeing's commercial airplanes unit, also expects the plane's operating economics to be slightly better than originally promised.

Anticipation for the new plane, which the company says could be the most successful in industry history, has driven BA shares to a 52-week high in the low-$90s. The shares have been on a tear since September, so they might seem pricey now. Boeing knows this, and it also knows that much of its future profitability will rely on whether the 787 lives up to its lofty expectations. Carson said that Boeing already has 435 "firm orders" for the 787. Still, any hint of bad news might give investors a chance to get on temporary weakness.

Add another log to the LBO rumor fire, because the New York Times's DealBook reports that Barnes & Noble, Inc. (NYSE:BKS) is a ripe candidate to be taken private. Credit Suisse analyst Gary Balter has raised his rating to "outperform" from "underperform," citing the book retailer as "one of the best positioned LBO-type candidates in our universe."

He thinks B&N's shares look pretty cheap, based on the company's consistent cash flow, and promising near-term rate of return.

Word has also surfaced that B&N rival Borders Group, Inc. (NYSE:BGP) could also be headed for an LBO, even though it's less likely. Balter has lowered his rating on BGP to "neutral" from "outperform," presumably due to valuation; the stock's had a nice 33% upside since July.

Buyout speculation has been swirling ever since Pershing Square Capital took positions in both booksmiths. Balter thinks, however, that even though Borders could rebound from its disappointing earnings news last month, B&N has a "better risk/reward level."

Ever wanted to manage your portfolio like your very own hedge fund? If so, then there's no reason to re-invent the wheel. There are thousands of pro investors who live by a simple imperative: earn or die. One strategy for building your own wealth, therefore, is to select a few with proven track records, concentrated portfolios, and low turnover, and pore over their quarterly regulatory statements.

In a recent Barron's article, Andrew Barry found five such mavericks and the names that were among their top holdings as of September 30, when the last 13-F reports were filed. Sure, your timing might be off because the information is 45 days old, but these investments can at least shed light on what the best brains are thinking and possibly indicate similar plays in hot sectors.

Did you notice? Last month saw $8 billion in initial public offerings, the largest total in five and half years. This was the best November total since the 1999 tech boom, and it puts the year's total worth of IPOs at $40.1 billion, up 4% year-over-year. This despite the fact that only 172 deals have been done this year, down 27 from this time in 2005.

It's a booming market, and now is a great time to float some shares and raise capital. So even though the U.S. market is getting a bit of a bad rap from a regulatory standpoint -- international companies are showing signs of being scared off by the cost of complying with so many restrictions -- the next several months could hold myriad opportunities for getting in early on small- and mid-cap offerings. The Philadelphia Inquirer reports that 11 more deals are slated for December, and more than $18 billion more is filed with the SEC, waiting for release.

Can you imagine what might happen if Treasury Secretary Henry Paulson gets his wish, and Sarbanes-Oxley gets the chance to show if its reforms will hold on their own? Next year could be massive.

Shares in the Nasdaq Market (NASDAQ: NASD) fell more than 7% today after Prudential Equity Group analyst Robert Rutschow cut his rating to "underweight" from "overweight," dropped his 2007 and 2008 profit forecasts, and lowered his price target to $35 from $40.

After the exchange operator spent big to acquire Instinet and a 24.1% share of the London Stock Exchange, Standard & Poor's reacted to the Nasdaq's higher debt leverage and dropped its long-term counterparty rating to junk status (BB+). Since then, the shares have risen at a hefty clip, from the mid-$20s to a high of $40.63. But Rutschow's bold decision to bypass a "neutral" rating had most investors heading for the door.

NASD shares still sell at a discount to other exchanges (27x earnings, as opposed to an industry average of 37x), but Rutschow still feels they are over-valued. Nasdaq is still the world's largest electronic exchange, but competition from the NYSE and other ECN's is getting stiffer. Profits could also take a huge hit as Nasdaq's attempts to take over the LSE outright hit snag after snag.