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Should Value Investors Buy Legg Mason (LM) Stock?

Zacks Equity Research
Does Lithia Motors (LAD) have what it takes to be a top stock pick for momentum investors? Let's find out.

Here at Zacks, our focus is on the proven Zacks Rank system, which emphasizes earnings estimates and estimate revisions to find great stocks. Nevertheless, we are always paying attention to the latest value, growth, and momentum trends to underscore strong picks.

Looking at the history of these trends, perhaps none is more beloved than value investing. This strategy simply looks to identify companies that are being undervalued by the broader market. Value investors use a variety of methods, including tried-and-true valuation metrics, to find these stocks.

Luckily, Zacks has developed its own Style Scores system in an effort to find stocks with specific traits. Value investors will be interested in the system's "Value" category. Stocks with both "A" grades in the Value category and high Zacks Ranks are among the strongest value stocks on the market right now.

One stock to keep an eye on is Legg Mason (LM). LM is currently sporting a Zacks Rank of #2 (Buy), as well as a Value grade of A.

Investors should also note that LM holds a PEG ratio of 0.66. This popular metric is similar to the widely-known P/E ratio, with the difference being that the PEG ratio also takes into account the company's expected earnings growth rate. LM's PEG compares to its industry's average PEG of 1.20. Over the past 52 weeks, LM's PEG has been as high as 0.90 and as low as -4.02, with a median of 0.54.

Another valuation metric that we should highlight is LM's P/B ratio of 0.84. Investors use the P/B ratio to look at a stock's market value versus its book value, which is defined as total assets minus total liabilities. This company's current P/B looks solid when compared to its industry's average P/B of 1.61. Within the past 52 weeks, LM's P/B has been as high as 0.87 and as low as 0.51, with a median of 0.69.

Value investors also love the P/S ratio, which is calculated by simply dividing a stock's price with the company's sales. This is a popular metric because sales are harder to manipulate on an income statement, so they are often considered a better performance indicator. LM has a P/S ratio of 1.09. This compares to its industry's average P/S of 2.57.

Finally, our model also underscores that LM has a P/CF ratio of 7.42. This figure highlights a company's operating cash flow and can be used to find firms that are undervalued when considering their impressive cash outlook. This company's current P/CF looks solid when compared to its industry's average P/CF of 12.20. Over the past year, LM's P/CF has been as high as 7.85 and as low as 4.58, with a median of 5.96.

These figures are just a handful of the metrics value investors tend to look at, but they help show that Legg Mason is likely being undervalued right now. Considering this, as well as the strength of its earnings outlook, LM feels like a great value stock at the moment.


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