Shares of Baltimore-based Legg Mason (LM), a leading asset management firm, have been crushed lately and now sit more than 20 percent below their highs. At a recent quote of $111, the stock looks expensive at first glance. The company will report its fiscal fourth quarter numbers on May 10th, with consensus estimates at $4.18 in EPS for the year. How then are LM shares attractive at 26.5 times those profit expectations?

With their recently completed asset swap with Citigroup (C), Legg is now a pure play on asset management and should be able to boost margins substantially. Looking out to calendar year 2007, after the acquisitions has been fully digested and integrated, LM should be able to earn at least $7 per share. Put a reasonable 20 P/E on those profits, based on a double-digit growth rate and within the company's historical valuation range, and you have a solid 30 points of upside.