Since my column highlighting the brokers appeared last week, the group has jumped several percentage points. As I said in my original column, watching this group is important, as it will lead the charge out of the gate when the market improves.

The brokers are also important for value investors because much of their share value, even after last week's spike, is covered by a rich assortment of assets. The best asset, of course, is cash (or cash equivalents). In this category, the brokers are loaded: The cash-per-share levels listed in the table below are net of all debt.

Besides cash, another important asset for most brokers is their money-management business, though it's generally an asset hidden from view on the financial statements. Most brokers enjoy a steady stream of noncyclical, high-margin fee revenue from money-management services. A mutual fund family, like the funds at Merrill Lynch (MER:NYSE - news - commentary - research), can be easily valued because of the number of publicly traded comparables.

Here's an updated table of brokers, with a couple of additions: Lehman (LEH:NYSE - news - commentary - research) and A.G. Edwards (AGE:NYSE - news - commentary - research). I made the mistake of labeling all six brokers in my previous column as attractive; that's unnecessarily ambiguous. Context is all-important here. In a raging bull market, all of the brokers will thrive. In a sideways or declining market, there are big differences in this group.

Breaking Down the Brokers
	$Cash/Share	Money Mgmt Per Share $	$Cash Plus Money Mgmt	10/2 Closing Share Price	% Cash Plus Money Mgmt
Merrill Lynch (MER:NYSE)	10.10	15.78	25.88	$39.50	66%
Goldman Sachs (GS:NYSE)	13.20	15.01	28.21	73.60	38
Morgan Stanley (MWD:NYSE)	3.20	6.58	9.78	47.05	21
Charles Schwab (SCH:NYSE)	2.10	1.52	3.62	11.38	32
Legg Mason (LM:NYSE)	7.60	34.38	41.98	39.45	106
Raymond James (RJF:NYSE)	8.80	8.87	17.67	27.80	64
Lehman (LEH:NYSE)	9.40	0	9.40	57.61	16
A.G. Edwards (AGE:NYSE)	9.60	8.87	18.47	35.77	52
Source: Alsin Capital Management

Big Brokers

The bet I want to make is that initial public offerings aren't coming back in a big way for several years. Indeed, we may not have completely unwound the investment banking excess of the last cycle. The most vulnerable companies to a sustained decline in investment banking are Goldman Sachs (GS:NYSE - news - commentary - research) (one-third of 2000 revenue), Morgan Stanley (MWD:NYSE - news - commentary - research) (one-fourth of 2000 revenue) and Lehman (one-third of 2000 revenue).

Merrill Lynch is the safest of the big brokers, with the best coverage of cash and money-management assets to share price (see table) and the least dependent on investment banking (15% of 2000 revenue).

If we assume market returns for the next few years will be moderate, say 5% to 10% annually, and investment banking gains will be modest, there are a couple brokers that I'd recommend buying today: Legg Mason (LM:NYSE - news - commentary - research) and Raymond James (RJF:NYSE - news - commentary - research).

A Winning Pair

In the last cycle, Legg Mason and Raymond James forged a similar course, spending their capital on building value-based money-management businesses and on deepening customer relationships, instead of aggressively pursuing fast money in the IPO market.

Both are growing regional firms. Both have demonstrated the utility of a brokerage business model that does not depend on investment banking, posting only modest drops in income in 2001. And most important for the frugal investor, the share price of each is substantially backed up with net cash and a valuable money-management business.