Legg Mason, Inc. (LM)

Pounded by the economy - not bad management or investments

Long term dividend pick

Betting that the financial sector is close to the bottom, and if it isn't the dividend keeps the Roth happy anyway.

Assets under mgmt are stabilizing, asset mix is good (56% fixed income, mostly corporates, 22% equity, with style and most of mutual funds strongly recovering) and Gabelli recently (7/23) made a strong case about how the stock could double in the next two or three years. I tried to apply the rule of Marty Whitman about how to value asset managers and this stock seems to be the most undervalued (see gurufocus.com/news.php?id=1169 a very interesting article by Brian Zen).

LM has a very strong and respected brand, and many solid subsidiary companies. I believe they will see continued inflows of capital over the next few years.

Mmm...asset management...

Every time I look at my limited holdings of this stock my insides scream "buy more, buy more." At present LM is selling at 40% less than its book value. When the market starts to return, if it hasn't already, it will spark an accelerated groth in LM faster than the market itself.

The Fool helped me pick this one...speculative buy on my part, but believe that this one will end up a winner when the economy turns (not that all stocks won't be winners...just think this one will do better than average)

Fool rec.

Comment 2/28/09

This stock is grossly undervalued at the current $12.83/share. The three main reasons for this and my responses to them are:

1. Bill Miller has taken it on the chin lately and hasn't helped his cause much by making some well publisized dumb comments.

Bill Miller may be the face of Legg Mason, but he actually controls a relatively small portion of the AUM, the company can do fine even if the LMVF is terminated. The public doesn't realize this.

2. LM has had well publisized large losses from SIV exposure (that they acquired in the Citi transaction which somehow doesn't surprise me).

LM has taken steps to greatly reduce their exposure to these SIVs, while at the same time making sure that it has done the right thing by it's investors so as not to damage it's brand name. The core investors at LM know what they are doing and as soon as the investing public realizes this, assets will start to flow back into the company.

3. General economic fear and uncertainty.

There's an awful lot of money on the sidelines right now & LM will get it's share once the fear subsides.

There's an awful lot more value in this company than the market is pricing in right now.

Book value of .35. Rough Economic times, but the company usually makes pretty good money. Event the current cash flow statement does really warrant a .35 book value. Company pays a dividend which I like. This is very much a value pick.

With 2 of the 3 worst performing non-leveraged US stock funds in 2008, more redemptions will eat into the company in 2009.

BMW Pick

People will spend less, invest and save more, which means money managers will benefit.

I agree that it could be risky business investing in any financial company right now. However, this company does have a very healthy balance sheet and a very good track record. On the short term you will most likely take a hit, but i cant ignore the long term potential here. I think for around $20/share its worth it. You may not get anbother chance like this to get in on a great company.

Looking purely at the SlowStochastics on LM's chart, it appears this stock is currently ready for another slip down the rabbit hole. Irs financials aren't so bad, but it's in a beaten-up industry which still has some more pain to go through. I think we could see LM sink to $12/share, or perhaps more. I'll ride it down to at least that far, then I'm out of my Thumbs-Down position.

A steal at these prices...great business with lots of cash, and good people

This CAPS account is tracking the 200 highest yielding S&P stocks.

THIS WILL BE MY ONLY FINANCIAL PICK FOR NOW