The Turnaround Artist Answers Readers

I like the dialogue that I have with RealMoney readers. While I read each and every email from subscribers, it's difficult to respond to them all. So I'm trying a series of Friday Q&A sessions to answer your questions. At the end of this one, I'll solicit your questions for my next three Friday columns, each of which has a theme. This week's questions, though, are a hodgepodge:

Question: Have you updated your valuation of Legg Mason (LM - commentary - Cramer's Take) lately? I have a 50%+ gain on my position (thanks to you) and would like to do the smart thing, which could mean doing nothing.

-- J.J.

Answer: Legg Mason is trading at my calculation of fair value. It's reasonable to hold this one for the long haul. When I first wrote about Legg Mason, it was valued at less than net cash and cash equivalents plus the value of the money-management business. This is where most investors make a mistake when analyzing brokers. Brokers have substantial money-management businesses, and you can't ignore their value.

For example, Merrill Lynch (MER - commentary - Cramer's Take) has a substantial proprietary mutual fund family. This division of Merrill should be valued in the context of comparable publicly traded money-management companies, such as T. Rowe Price (TROW - commentary - Cramer's Take), Franklin Resources (BEN - commentary - Cramer's Take) or Neuberger Berman (NEU - commentary - Cramer's Take).

Question: I was wondering how high-paying dividend stocks will do vs. money market funds if interest rates rise for an extended period.

-- R.S.

Answer: I wouldn't worry about this at all. We're in an unprecedented market phase. You can buy plenty of high-quality stocks that yield dividends substantially higher than the yield on T-bills, notes or even 10-year bonds. Factor in the dividend tax break, and the comparison to fixed income is even starker. It's silly to put money in a bank account with a 1% fully taxable yield. Buy the bank instead: Consider, for example, Washington Federal (WFSL - commentary - Cramer's Take), which sports a 3.8% yield, or PNC Bank (PNC - commentary - Cramer's Take), which yields 4%.

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Arne Alsin is the founder and principal of Alsin Capital Management, an Oregon-based investment advisor and portfolio manager of The Turnaround Fund, a no-load mutual fund. At time of publication, Alsin and/or ACM was long Washington Federal, PNC and Bristol-Myers, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Alsin appreciates your feedback and invites you to send it to [e-mail]. Click here to receive Arne's latest favorite stock picks from his newsletter, The Turnaround Report.

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