Legg Mason, Inc. (LM)

weiwentg (53.25) Submitted: 10/12/06 9:32 PM : Start Price: $85.62 LM Score: -42.09

Legg Mason reported that their earnings dropped by a few cents, and the stock went down 10%. There was a small one-time charge, and slightly less management fees because investors shifted to fixed-income. Oh, and there's speculation that money is being pulled out of their funds because Bill Miller is going to lose to the S&P for the first time in 15 years.

The people who sold are idiots. After jettisoning the lower-performing junk like the brokerage business, and buying funds from Citigroup, Legg Mason is going up. They got a very good deal from Citi. Their purchase of a fund of hedge funds was less of a deal. And so what if Miller loses to the S&P this year? In fact, if LM's funds weren't so overpriced (due to hefty 12b-1 fees), I'd buy LMVTX (Miller's fund). The near-term concerns are overrated. The business model is strong. Their perhaps overly-generous executive pay gives me pause, but it's not egregious. Their giving fund directors generous golden parachutes makes my lip curl, especially because a lot of those fat, lazy directors will turn around and join new Legg Mason boards. But I think the expenses incurred are minor relative to the company's size.

Legg Mason is a strong, newly-undervalued company.

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