AOL Time Warner

(AOL)

is the ultimate Rashomon stock.

Is it a company in the throws of diworsification, with a "new economy" company nearly sinking an "old economy" one? Is it a company with an "SEC investigation" scarlet letter --

including news today of the agency's probe into possible double-booking of revenue? Is it a company with management turmoil at the top? Is it a company whose stock has fallen 75% since the companies marries and is undervalued relative to its assets? Depending on whom you ask, you may get a yes to all four.

If you're looking for clues from the so-called smart money, it's tough to read: On the one hand, Janus and Alliance Capital Management, two of AOL's 10 biggest institutional holders, have been cutting back lately, according to Lionshares. Capital Research and Fidelity -- No. 1 and No. 2, respectively -- have been on a buying spree. For AOL bulls out there, you have some good company: Market-beater Bill Miller at

(SYMBOL)

Legg Mason Value Trust recently added nearly 1 million shares and venerable giant

(AGTHX) - Get Report

American Funds Growth Fund of America has been the second-biggest fund buyer of AOL's stock, according to Morningstar. (The good folks at Legg Mason Value Trust, Fidelity, Janus and American Funds all declined to talk specifically about AOL, but their recent purchases do the talking.)

To get the fund world's perspective on AOL, we talked with several money managers -- some sellers, some buyers -- to answer several key questions, including: Where's the stock headed? Whether you own the stock, or a fund that owns it, you'll want to hear their answers. A few notable dissenters aside, the managers think despite the questions marks, this stock looks cheap.

What Price AOL?

AOL is not an easy company to value, because of its varied businesses as well as the possibility of another big write-down. But all the managers acknowledged one truth -- at a price tag of $11.91 a share, the market is assuming that the AOL's Internet business has zero value.

"The market is wrong in expecting AOL has no value," said one manager of a large-cap fund, who owns AOL. This skipper calls the media giant a contrarian play where there's a large chance that the market is mispricing the company.

"Anything between $10 and $15 is good," he said, adding, "Anytime you see this stock below $10, you'd be a knucklehead not to buy it."

Walter Henry says the stock, based on the sum of its parts, may be worth $20. The senior portfolio manager at

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Victory Diversified, a fund that looks for beaten-down stocks primed to recover, says the Time Warner side of the business -- 80% of the whole -- looks good. AOL, meanwhile, is worth at least $3 to $4 a share. As of August, Victory had no stake in AOL, selling its 900,000, according to Morningstar. (One big question mark looms over the stock and prevents Victory from buying, he says, which will get to momentarily.)

Some managers, however, have found assessing AOL's value too thorny, and remain on the bear side. Alan Hoffman, senior portfolio manager at

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ValueLine Leveraged Growth, sold off his 295,000 AOL shares over concerns about the company's earnings and lack of visibility about its future.

"I probably held onto the stock too long in the hope consolidation will figure itself out," said Hoffman, whose firm uses a value screen to find companies primed to outperform. On its five-point scale -- five being the worst -- AOL skidded to four, an automatic sell signal. "

A turnaround might happen, but it seems less likely now than a year ago."

Doug Kass, general partner at Seabreeze Partners and a regular on RealMoneyPro.com, disagrees. Kass says the market is attributing negative value to the Internet component.

"I'm a buyer here -- when I was short AOL

Kass was short until January 2002 it traded at 25 times cash flow and its closest peer,

Viacom

(VIA) - Get Report

, traded at 11 times," Kass says. "Today, the roles are reversed -- Viacom is at 12.5 times cash flow at AOL is at 8.5 times." Kass' prediction: AOL shares fetch $15 to $16 by the end of the year, and the mid-$20s by the end of 2003.

What's the Biggest Question Mark?

Boy, there are lots of candidates here:

SEC probe.

Heavy debt load. A write-down of the Internet assets.

A possible ouster of Chairman Steve Case. Facing off against mighty

Microsoft

(MSFT) - Get Report

.

Concerns that the Internet division will get left in the dust by broadband rivals.

These are all big-ticket items (please click on the items to read recent

TheStreet.com

articles on AOL's troubles). Kass and other skippers say many of these concerns are priced in, while Hoffman says it's too soon to say. Either way, the question mark the managers discussed most often was something outside of AOL's hands: the economy and the advertising market.

"This whole thing comes down to the economy," the unnamed fund manager said. "You tell me where the economy is and I'll tell you where AOL is."

If the economy heads for a double dip, it will exacerbate many of AOL's current problems. Not only will debt become an ever more-pressing issue, but all of the company's initiatives to improve business will face an even greater uphill battle.

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The advertising market, which is the lifeblood of a media company -- even one that has leveraged subscriptions as well as AOL has -- is extremely sensitive to economic woes. Indeed, the ad market has shown only slight glimmers of hope, as it did with the strong upfront TV ad sales season.

"If we saw any signs that the advertising trend was flattening here, we'd be buyers," said Henry of Victory Diversified. "I think if advertising improves, and you get some cross-selling between the subscriber base at AOL and the publications and music, well, it could be a good driver of the stock."

Can the Diworsification Ever Be Fixed?

It's no secret that the corporate cultures of Time Warner and AOL never gelled and those promised synergies haven't exactly come to pass. Today, after some serious chair rearranging in the executive boardroom that ousted many top former AOL-side wampums, the empire rests in the hands of Richard Parsons. But while the shakeups and changes have many individuals concerned, the professionals think the worst news is already out.

"Parsons is moving in a deliberate manner to change the management team with the introduction of Jonathan Miller, who mentored under Barry Diller," said Kass.

Still, with investors (including one Ted Turner) demanding the head of Chairman Steve Case, some have been skittish about investing in a company that could have one more executive purge left at a very high level. But even those managers who aren't apologists for company management believe that Parsons may be on the right track.

"They've made changes. And the focus will now come from the Time Warner side. That gives them a whole lot more credibility," said Henry.

At some point, Kass thinks that Case will be let go, but in the near term, he'll be taking all the flack while Parsons attempts to fix the company's fortunes -- giving new management a chance to dig in.

Headline Risk or Headline Reward?

Headline risks like "SEC probe" and "asset writedown" are big red flags for AOL. One of the biggest AOL faces is the possibility that it will need to write down more debt. Even Kass, who has been bullish on AOL, admits that the company "probably faces additional goodwill charges" but adds "it's hard to say how much because a lot has already been taken."

For some managers, the possibility that debt could impact its stock price and earnings per share makes AOL too risky to hold. In August, Alan Hoffman, fund manager at Value Line, sold out of his 295,000 share AOL position in August, according to Morningstar.

But on some level, the massive drop AOL experiences when bad news emerges could represent a buying opportunity. "AOL is certainly a company that has been stressed and is a perfect contrarian-type play," said the unidentified fund manager. "We're not concerned about management or write offs."