10 Questions With Legg Mason Focus Trust's Robert Hagstrom

5. Let's talk about General Electric, your No. 7 holding, and what Father Brown might call "cultivating the understanding of intangible." Some intangibles include GE Capital's exposure to troubled industries, such as telecom and insurance. How comfortable are you with the company's ability to manage the intangibles?

We bought General Electric(GE Quote) after 9/11 -- it's kind of run back and forth a bit.

I'm not sure to what degree GE Finance's exposure risk is overstated. Everybody is exposed -- any financial-services company that has lending businesses has some risk in this environment. As pessimism rises in this market, people think there's voodoo behind the curtain, and I'm not so worried about that at GE.

I think [Chief Executive] Jeff Immelt is a pretty good guy -- his decision to make it more transparent is a starting step in helping to understand the company's worth. It's a starting step.

The greatest story with GE is the underlying notion that the larger companies over smaller companies have a greater opportunity to benefit from productivity gains. GE has numerous ways to benefit from gains in productivity. Big companies like GE are able to dictate terms with their suppliers, and we think the company is in a strong position going forward.

The stock's about 30%-40% off its 52-week high. What kind of upside do you see?

Probably about that much. I think GE is 30% undervalued here -- it's not a home run. Tyco is probably 50% or more, but GE also offers less risk and more predictability. [GE closed at $25.10 Friday.]

Speaking of telecom exposure, Legg Mason Focus has an 18.7% sector weighting in telecom -- more solid names like Nextel, your No. 1 holding. What do you see for the battered sector going forward?

I don't even know if the negative aspects of the "telecom" label applies to companies like Nextel(NXTL Quote), Vodafone(VOD Quote) and Nokia(NOK Quote) -- three stocks we own.

To me, Nokia is the Dell of the industry. Nextel was an amazingly cheap stock at four or five bucks [it fell to $2.50 in July and closed at $13 Friday].

As a colleague of mine said, just because there has been a boom and bust in telecommunications doesn't mean we're going back to jungle drums and tin cans. That said, you have to pick and choose your opportunities. We don't own Lucent(LU Quote), or Nortel(NT Quote) -- there are highly problematic issues surrounding these companies. But the companies we do own, we feel pretty comfortable with.