Turning bad news into good returns.

Legg Mason Funds' Michael Ray looks to profit from the market slide

Michael Ray isn't afraid of the current market. The vice president and head trader for Legg Mason Funds Management uses an investment strategy that seeks to make the best out of what most people would consider a bad situation.

                                                 Est. 5.-Yr.
Company                       P/E on Projected    Annual EPS
Exchange: Symbol   Price(*)    2001 Earnings       Growth

Ford Motor Co.     $24.28         19.20%            6.3%
NYSE: F

Kroger Co.          25.47         16.6(**)          15.6
NYSE: KR

J.P. Morgan
   Chase & Co.      44.51         14.5              12.1
NYSE: JPM

Amazon.com Inc.     15.17        -22.2              22.0
Nasdaq: AMZN

Corning Inc.        15.13         17.2              22.4
NYSE: GLW

Company
Exchange: Symbol   Why Stock Will Outperform

Ford Motor Co.     * Excellent product offerings will fuel overseas
NYSE: F              sales over the next 12 months.

Kroger Co.         * New merchandising initiatives and products will
NYSE: KR             outpace competitors.

J.P. Morgan
   Chase & Co.     * Synergies from merger will fuel growth.
NYSE: JPM

Amazon.com Inc.    * Internet shipping for other firms creates new
Nasdaq: AMZN         revenue, will be cash flow positive within a year.

Corning Inc.       * Is diversifying into biotech and pollution control
NYSE: GLW            while fiber optics rebounds.

First, Ray considers the yearlong market slide temporary. With many stocks at their lowest levels in years, he looks for firms that will rebound over a 2-5-year time horizon. No, hit-and-run investing for him.

"When people focus so much on the short term, they miss opportunities to garner large gains in their portfolios," he explains. Next, "People should focus on buying a stock when its news flow is bad. If there is a quarter when a company has bad earnings, or if there is some temporary situation where there is a problem with a product or some potential litigation, that's just a short-term blip compared to the long-term prospects of the company."

In line with Bay's theme of capitalizing on bad news, Ford Motor Co. (NYSE: F) has endured the much-publicized Explorer-Firestone tire scare that beat the stock down to about $25 in July, about 10% off its 52-week low in the midst of this public-relations nightmare. Ray feels the automaker's product offerings are excellent, predicting "the company will make money overseas in the next 12 months," which could raise the stock price over the near term.

Ray also likes Kroger Co. (NYSE: KR), the country's largest food retailer. Facing a loss of market share from wholesale clubs and discounters, Ray says Kroger is using new merchandising initiatives to compete. The stock which was trading at $24 in July, could easily move above $30 within 12-18 months. "It's a defensive play because it's a food stock, but it also has a growth tilt."

One of Ray's favorites is J.P. Morgan Chase & Co. (NYSE: JPM). He expects the financial services company to shake off concerns about nonperforming assets and lower revenues from its investment banking division once all the synergies from its recent merger are realized. Trading at $42 in July, Ray expects it to move higher "as the market psychology improves,"

Ray insists that the prospects for Amazon.com Inc. (Nasdaq: AMZN) have improved significantly. "Their losses are down due to higher sales because a lot of their Internet competitors have gone out of business," He says Amazon has evolved into a true retailer with an expertise in Internet shipping. The company is winning revenue-sharing agreements with companies such as Toys R Us who don't have the financial resources or infrastructure needed to handle orders generated over the Internet. Recently trading at $15, Bay says, "The company should be cash flow positive within a year."

Ray's last pick is Corning Inc. (NYSE: GLW), the fiber optics company whose stock has fallen from more than $100 last year to a recent price of $14 because of a backlog of inventory. Since the outlook for fiber optics is bright, and Corning has added applications in the biotech and pollution-control areas, Ray believes Corning shares could easily reach $20 over the next 24 months.