Updated from 2:08 p.m. EDT

The re-emergence of value investing has already lifted the shares of mutual fund company

Franklin Resources

(BEN) - Get Report

this year.

Now, a possible market recovery has one analyst predicting even more takeoff for the stock.

On Thursday, Goldman Sachs moved Franklin Resources -- which runs the Franklin and Templeton mutual funds as part of its 245 investment products -- to its recommended list from market outperform.

"Franklin's prospects are getting significantly brighter, bolstered by the ongoing rebound in its investment performance, and a return to value-style investing," said Richard Strauss, an analyst at Goldman Sachs, in a research note. "Importantly, the strong returns have continued into May."

The change comes as Franklin's predominant fund style, which is value, is outperforming other investment classes. Of Franklin's 15 largest stock funds, representing 31% of its total assets under management, 13 are up so far this quarter, at a time when many major stock indices have depreciated.

When the stock market does recover, Goldman Sachs thinks that Franklin will be poised to "benefit disproportionately" from the "subsequent acceleration" in industry-wide equity fund flows. According to Strauss' assumptions, the fund company could have room to rise 26% from its current level.

But should the

S&P 500 have its third consecutive down year, which hasn't happened since 1941, Strauss acknowledges it would weigh down all equity money managers.

Meantime, Franklin Resources is already more richly valued than other mutual fund companies. Using 2002 earnings, Franklin Resources trades a price-to-earnings multiple of 22.4. Competitor

Stilwell Financial

(SV)

, the manager of the Janus and Berger mutual funds, has a P/E of 13.5, while

T. Rowe Price

(TROW) - Get Report

has a P/E of 20.

In fact, the 12 money managers Strauss covers have an average P/E of 18.8, based on 2002 earnings. Trading at 12.8 times 2002 projected earnings before taxes, depreciation and amortization, Franklin Resources is also slightly above the average enterprise value of funds the analyst follows.

Still, investors have looked past possible valuation concerns. On news of the Goldman upgrade, Franklin finished up $1.36, or 3.2%, at $44.13 Thursday. The stock is ahead 25% already this year.

By contrast, Stilwell Financial is down 20%, while T. Rowe Price is up only about 4% for the year. Money manager

Neuberger Berman

(NEU) - Get Report

is flat, and

Legg Mason

(LM) - Get Report

is up about 11%.

Part of the reason why Franklin's stock has outperformed is that its total assets and sales are rising. In its fiscal second quarter, assets increased to $274.5 billion from $215.7 billion in the year-ago period. At the same time, revenue climbed to $626 million from $577 million at the same time a year earlier.

Stilwell, meanwhile, saw its assets decrease in the fiscal first quarter to $188.8 billion from $246.6 billion in the year-ago period. Revenue plunged to $328.3 million from $448.5 million.

The bottom line, at least according to Goldman Sachs, is that as long investors put money to work in Franklin's conservative value funds, a trend it expects to continue, the stock should keep benefiting.