Legg Mason Sticks With Winning Stocks Fund Group Takes Major New Position In MCI WorldCom
Investor's Business Daily, 11/27/98
Author: Nancy Gondo
Legg Mason's top two holdings are a pair of the decade's hottest growth stocks: America Online and Dell Computer.
And it's not due to temporary plays in the high-growth technology sector. The fund group tends to be a long-term holder.
''It depends on the fund of course, but within equity (funds) we're known to have a bit of a franchise in the value area,'' said Ed Taber, head of asset management for the group.
But, he adds, the fund family will blend value and growth when it comes to picking stocks, if it seems the best opportunity.
''Value is always on our thoughts, but there are times when we're not going to be constrained by being a value zealot - and we have been rewarded in doing so in the past,'' he said.
The group's top 25 holdings have not changed much since September, Taber says. And that's worked in Legg Mason funds' favor.
America Online reached new closing highs Monday and Tuesday on reports the online service is buying Netscape Communications for $4.2 billion in stock.
Though AOL lost 4 cents a share in fiscal '97, it came back to earn 28 cents in the year ended June. Wall Street expects the company to double its profit to 56 cents next year and sees a 54% jump to 86 cents in '00.
The stock has almost doubled this year. Sales increased 54% the past two years. The Legg Mason fund family sold 145,000 shares of AOL during the third quarter, but it's still the group's biggest holding.
Taber thinks the AOL-Netscape merger should be a positive move for AOL. And he's not alone.
On Wednesday, Lehman Brothers analyst Brian Oakes raised his price target on AOL to $110 from $75 and maintained his ''buy'' rating.
''Given the strength in AOL's current business and limited financial risk in the deal, we feel comfortable raising our target price to 110 even though we realize valuation is being stretched -but this is the Internet and AOL is the dominant company,'' Oakes said.
Dell has IBD's highest-possible 99 Earnings Per Share and Relative Strength ratings. Sales and profit growth have been in the double or triple digits the past 13 quarters. The PC maker's financial services unit said lease originations recently topped $1 billion.
The Round Rock, Texas-based company also announced it's offering several flexible payment options to make it easier for consumers to buy PCs during the holidays. Among the plans are a Dell Platinum Visa credit card and Dell gift certificates.
Analysts project Dell will lift earnings by 64% to $1.05 a share for the year ending in January and 39% to $1.46 in '00. The stock has more than tripled this year.
Earlier this month, Dell attempted to break out of a narrow six-week base but the rally fizzled out. The stock is now trading about 12% off its Nov. 11 high.
Fannie Mae, the fund group's fourth-largest holding, pulled out of a 16-week base in late October before trading sideways for three weeks. It broke out again on Monday and is setting new highs.
The mortgage investor's annual profit has risen steadily since '89, from 79 cents a share that year to $2.84 in '97.
Sales have increased in the double digits the past five years. The company has an Earnings Per Share rating of 80. Its 89 Relative Strength means it's outperformed 89% of all other stocks during the past 12 months.
Legg Mason's funds invested a big chunk of their new money in Jackson, Miss.-based MCI WorldCom. The group spent $163 million to buy almost 3.4 million shares of the telecom services provider, making MCI WorldCom its seventh-largest position for the period.
The company announced this week it will offer voice and data service to Tokyo on its own network. Three mutual funds rated an ''A'' or higher by IBD recently bought new positions in the stock.
The stock cleared an 18-week base last week on above-average volume. Sales growth has held above 36% the past seven quarters. The stock has gained about 94% this year and hit a new high Wednesday.
Providers of telecom services are rated No. 28 among IBD's 197 industry groups, based on six-month price performance. They've moved up 22 notches from two months ago.
Also doing well are makers of telecom gear. They hold the No. 31 spot, up from No. 89 eight weeks before. Nokia was Legg Mason's 13th largest holding for the period. The stock has shot up 183% this year.
The Finnish mobile phone maker has posted accelerating earnings growth the past three quarters, from 12% to 29% to 51% to 80%. Sales growth has also sped up during that time, from 0% to 17% to 33% to 69%. |
