Michael Price Says Stocks May Climb, Repeat 1975-1982 (Update2)

By Thomas R. Keene and Whitney Kisling

Sept. 9 (Bloomberg) -- Billionaire investorMichael Price said the U.S. stock marketresembles 1975-1982, when the Standard & Poor’s 500 Index doubled, and he’s finding value in small banks.

“We made very good returns from ‘75 to ‘82,” Price, who managed some of the best-performing mutual funds during the 1980s and 1990s and now runs New York-based MFP Investors LLC, said in an interview broadcast on Bloomberg Radio and Television. “Pick your spots, pick your stocks, do your work, and somebody’s going to be selling something too cheaply.”

The U.S. economy is showing some signs of improvement as demand picks up and credit-card defaults begin to slow, he said. The S&P 500 has climbed 52 percent from a 12-year low on March 9 as the unemployment rate and data on housing starts and industrial production spurred speculation the longest recession since the 1930s is ending.

An index of financial stocks in the S&P 500 has more than doubled since the March low after plunging 57 percent last year on losses and writedowns from the subprime market collapse that have climbed to $1.6 trillion. The downturn resulted in the sale of Bear Stearns Cos., Lehman Brothers Holdings Inc.’s record bankruptcy and a government takeover of American International Group Inc., once the biggest U.S. insurer by assets.

‘Worst Banking Crisis’

“We got through the worst banking crisis, period, worse than the ‘30s,” Price said. “This is so much better than summer ‘07. Now we find stuff, and there’s value.”

The S&P 500 rose to a record in October 2007.

Price also said he’s buying some small banks because they may combine. Price, 58, is known as a value investor who made his name buying shares of beaten-down lenders. Franklin Resources Inc. bought Price’s former firm, Heine Securities Corp., in November 1996 for more than $600 million. During the 10 years before he sold, his four Mutual Series funds ranked in the top 10 percent of all mutual funds tracked by Lipper, the research division of Thomson Reuters Corp.

“We’re trying to work on recapitalizing some banks,” he said. “You look at their loan portfolio, you go through it as closely as you can.”

Price owned shares of AIG before the insurer was taken over by the government a year ago. AIG was the eighth-biggest holding for New York-based MFP Investors LLC at the end of the second quarter last year. MFP sold its stake in the third quarter. The stock fell 97 percent in 2008.

Investors can find opportunities in companies that miss analysts’ earnings estimates for a quarter and still have strong long-term demand, Price said.

Some companies “that have disappointed in earnings recently, the stocks get too cheap,” he said.

More than 72 percent of companies in the S&P 500 beat analysts’ average profit estimates in the second quarter, matching the highest proportion since Bloomberg began tracking the data in 1993.

To contact the reporters on this story: Thomas R. Keene in New York attkeene@bloomberg.net; Whitney Kisling in New York atwkisling@bloomberg.net.

Last Updated: September 9, 2009 10:10 EDT