Samantha McLemore, Bill Miller’s longtime co-manager who struck out to start her own fund, has her eyes on some of the most hated stocks in the market. McLemore launched Patient Capital in 2020 after a 20-year stint at Legg Mason working with Miller, who shot to fame after running the firm’s Value Trust that outperformed the market for 15 years straight. The Baltimore, Maryland-based Patient Capital now oversees about $1.5 billion in assets. The investor said she is a classic long-term investor who studies companies’ intrinsic value, but she also has a knack for finding underappreciated opportunities based on consumer behavior. “What we think are the most enduring advantages are behavioral and the tendencies of groups and individuals to behave in similar fashions, extremes of fear and greed, recency effect and availability….that tends to be where we find mispricings the most,” McLemore said Tuesday at the Ben Graham 10th Annual Conference in New York City. Delta Air Lines is a stock she likes right now and she suspected that it could come as a surprise for many. The airline industry has been unpopular for decades for its high financial leverage and supply-demand imbalance, which could be viewed as a recipe for serial bankruptcies, she said. However, McLemore believes that Delta differentiates itself from the rest by being a premium brand and it generates revenue from stable sources like loyalty programs. The stock is looking particularly attractive now after the pandemic shock took down valuations drastically. DAL 5Y mountain Delta “I think now you’re getting another chance here,” McLemore said. “It’s generating a lot of free cash flow which we expect that even in a recession…over 60% of the business by next year will be premium and non ticket revenue.” Delta is up 30% this year after falling 16% in 2022. McLemore said the stock can “easily” rally 50% to hit $65 apiece. McLemore’s other pick is OneMain Holdings, an Evansville, IN-based lender and credit card company. Investors tend to avoid smaller-sized lenders in an economic downturn as they make less profit from credit. Sentiment towards financial stocks also seemed to sour after the recent banking crisis. The investor said she is attracted to OneMain’s 9% dividend yield and she believes that the company can sustain its earning power even through a recession. “Even in a recession, we have confidence that they can earn in the mid $4 a share,” McLemore said. “This is a great team. They have a lot of experience managing through these cycles.” McLemore said the stock is worth close to double the current price. OneMain has gained 28% this year to trade around $47 a share.
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