Legg Mason Shares Jump After CEO Resigns

Asset-management firm Legg Mason (NYSE: LM  ) has announced that Mark Fetting, CEO since 2008, will be resigning as of Oct. 1. The morning after this announcement, shares were up more than 5% -- supporting the general consensus that Fetting's tenure as CEO has not been a resounding success.

Evidently, investors view the CEO's resignation as an opportunity to buy, which prompts us to ask whether Legg Mason is a stock that, with enough assets and the right leadership, would be a good buy for the long term.

The answer is a big "maybe." Some considerations:

  • Legg Mason shares are down from $80 a few years ago to $26 today.
  • Clearly, this firm is not as good at risk management as it thought -- which, in fairness, you could say about almost all financials, as 2008 was a bad year across the board.
  • However, LM has failed to deliver in terms of both risk management and investing returns, and it hasn't even come close to beating the market over the past few years.

Granted, there are macro factors in play that nobody can control, and Legg Mason will just have to push through. With two-thirds of its assets on the fixed-income side, though, profitability and returns are bound to suffer -- and when the bond bubble eventually deflates (if not bursts), that money will slosh out of fixed income and into equities.

Other financials, including JPMorgan Chase (NYSE: JPM  ) and Goldman Sachs (NYSE: GS  ) , have great valuations and long track records and are operating at high levels. Legg Mason is a hard sell in comparison, at least until more is known about plans for Fetting's replacement.

See more in the following video.

Although Legg Mason and many other big finance firms are receiving bad press these days, it would be a mistake to rule out the sector entirely. In fact, some of the best opportunities over the next few years can be found in this arena, including one small, under-the-radar bank. It’s been called one of The Stocks Only the Smartest Investors Are Buying. You can learn about this gem and more in our exclusive free report -- Click here to read more

Chris Hill and Jason Moser have no positions in the stocks mentioned above. Joe Magyer owns shares of Goldman Sachs and JPMorgan Chase. The Motley Fool owns shares of JPMorgan Chase. Motley Fool newsletter services recommend Goldman Sachs. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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