American International Group, Inc. (AIG)

Here is the deal. I picked this to outperform, it underperformed. Frustrated I changed it it underperformed. It shot straight up. I changed back to outperform because it was going to reach a brazillian dollars. Now the free fall begins. I guess the best thing is to do the opposite of my pitch. And, as always, it is time in, not timing the market.

The recent stock price trend suggests that Mr. Market is beginning (or has begun) to forgive AIG for the transgressions that riled AG Spitzer and had him foaming at the mouth.

And even if Mr. Market has little or no compassion, perhaps the short-term memory is weakening? In any event, AIG is a capable company, rated at "A" for Financial Strength. With shareholder equity growing at 12%+, a return-on-equity of 13% with some room for upside and a projected P/E of 23.0x (some probable downside there), the projected annual return is 22-23%. Since AIG ranks in the top quintile for quality among all companies that we follow, it's time to add it to my CAPS collection.

If CAPS had a double-down button, I'd be exercising it on Walgreen (WAG) right now, too.

The only reason for the government to buy a ticking time bomb would be so they could diffuse it. However, for the time being it appears that they just picked it up for the taxpayers because they liked the ticking sound. Let's just take it home and set it on the mantle.

This is not a good situation. They need to shut this down as quickly as possible and avoid any further damage.

This financial black hole has sucked down over a hundred billion dollars of taxpayer money. How could anyone think they could buy the stock and make a profit? How would that be fair? How would that make any sense whatsoever?

The people responsible for this fiasco should be dragged out and hanged in front of the building.

International diversification is going to be key for blue chips in the coming years. AIG continues to infiltrate new and emerging markets. While natural disasters are always a concern, AIG has the reserves to weather the proverbial storms. NOTE: Their diversification is the same thing that keeps the company from being a real monster growth stock--just as a big disaster doesn't have the same effect, neither do events that would send other insurance companies stock soaring. Right now it's valued so low, it has nowhere to go but up, and with the regulatory/legal troubles in the past and a mild hurricane 2006 season, I see nothing but good things on the horizon for AIG.

Allow me to start off by illustrating my sentiment from January 2008 – February 2009: I hate banks and I have no idea what they are doing. I hate anything financially related.

But, I find myself not hating banks anymore. What happened? I’ve got eight leading indicators that people might be aware of but aren’t catching headlines like they should be and I’ve got four monster catalysts. What do I know? I’m only the Motley Fool’s Hottest Player going into Easter Weekend. Further, my entire college tuition is riding on the stock market.

Leading Indicators:

1. Federal Funds Target Rate is nil. This means that banks can borrow as cheaply as they ever have been able to. When you borrow at these interest rates, the net present value of any opportunity where you can at least get your money back is a good one to be taking.

2. Banks as a sector cheap from a historical perspective. I wonder why? Fear, panic, disorder, lack of trust, lack of speculation --- just a few ideas.

3. There is tons of cash on the sidelines. Blood is in the streets. There has definitely been “the slaughtering of the speculator” over the past year and a half. I believe now is the time when the speculator finally gets congratulated.
4. We are up 28% off the bottom according to the S&P500.
5. Global Markets are leading the way. They are up 53.4% according to EEM [iShares MSCI Emerging Markets Index (ETF)].
6. My uncle who is a banker panicked and sold out of the market at Dow 6700.
7. Mark-to-market has been relaxed to ‘mark-to-whatever-makes-us-look-good.’ A.K.A mark-to-profit.
8. The uptick rule might come back. In my opinion, this isn’t necessary at this point.

Monster Catalysts:

1. Citigroup (C) and Bank of America (BAC) said they were profitable in the first two months of 2009. Great! Now they can do whatever they want to their balance sheet with the relaxation of mark-to-market. What does that imply? How can you lose money when you get to put whatever you want on a balance sheet? Especially if you’re a bank and you thoroughly understand how to crunch numbers and make them look favorable, you’re going to be looking really good now. It’s the Enron dilemma of “mark-to-model.” I could come up with some great spreadsheet models that make me look like an undervalued opportunity.
2. It’s already happening! Wells Fargo (WFC) is coming in crushing analysts. Well, of course! What do you expect when you can borrow money to invest in opportunities and you’re not paying a significant interest rate on what you borrow?
3. Analysts are going to get caught with their pants down this week. Earnings are coming out. Tuesday: Goldman Sachs (GS); Thursday: JPMorgan Chase (JPM); Friday: Citigroup (C). There is so much upside that they simply can’t see because they don’t really understand what’s going on. If they did, they wouldn’t be analysts. They’d be retired. What does this do? This sets up an opportunity for some huge price target upgrades, usually after the price actually appreciates to that target. Have you noticed that analyst price targets seem to be a lagging indicator of stock prices --- or is it just me?
4. Debt upgrades. Once mark-to-profit kicks into full swing, the ratings agencies have to think a little more highly of these poor banks.

How to play this one:

I like a couple insurance agencies in decreasing order: CNO, GNW, PNX. I think GNW didn’t need the TARP anyway. That’s a sign of strength. Am I the only one seeing this?

I like a couple bank plays, also in decreasing order: FAS, C, BAC. I’m not into the Wells Fargos and the Goldman Sachs or even JPMorgans of the world --- where is the upside there? 100%? Not enough.

Again I would like to thank the legal taxpaying Americans of this great country. I realize you as a democracy are in complete control of the workings of your government and have graciously permitted your government to save the very companies that placed us in this very unfortunate economic situation. You truly must have elected the finest individuals to represent America to the world. Thanks again

PS- I purchased at .50 per share for my very real portfolio for no other reason than you backed this company and I wanted my money back.

It's time to get in now! The floor has been hit on this one, and the government is not going to let it fail, and so the stock will rise gradually making this price where it is right now a steal.

stocks been beaten down, even Spitzer is giving it time to get to it's feet

Legal problems, corruption, questionable underwriting practices should undercut the companies solid profits. i see more trouble ahead in the short-run. Long run all depends on how the company correct itself. The company is efficient but worke's morale is lower, as well as the wages. ( i used to work for AIG) not sure if lower wages are a good cost cut in the long-run.

Oh god, this was a Mistake!

The value of this stock is $0.00
It has taken $180B in loans from the Uncle Sam
The market cap is $5B, book value is $50B
In the bad old days, they made, say an average of $10B per year
So, how much does AIG owe?
if they return to $10B profit per year and give half to the loan, it will take 36 years to pay off
the stock would have to rise to above $1000, then fork over all the stock
OK, they might be able to wiggle out of some this debt, but this should give you some idea of the magnitude of AIG’s debt.

All I have to say is:

Muhahahahahaha

Well-diversified holding company, with a huge business in insurance domestically and worldwide, where it has a growing business. Think "Berkshire Hathaway" without the Buffett premium. Expanding presences in insurance markets around the world will contribute to significant earnings growth in the near future. Share price will follow.

the turn around is now over. The management team has done a great job focusing and expanding the business while cleaning up the accounting mess. Now they are going to focus on pushing the business.

I see Fannie Mae & Freddie Mac also with AIG outperforming the Dow in the month of January 2009. Look for prices to go down to about 50 cents a share and then rocket to about $30-$50 especially with all the trillions President-Elect Barack Obama will spend in 2009 to help homeowners and main street. He owes Main Street because of the undeserved bailout of greedy executives on Wall Street. Since he is a populist that is center-right, he will deliver very quickly!!!!!!

Trading at 66% intrinsic value. Solid company in an industry that may see an added bonus from the more speculative investors over the next three years as a large population of boomers begin retiring.

If it was going to fail, the government would have let it do so back in late 2008. They are finding buyers for non-core divisions and obtaining a reasonable return for those non-core assets. The Insurance Model is sound, and as the market slowly creeps up AIG will replace losses with new revenue.

After being beat up by Eliot Spitzer in 2005, the stock price recovered somewhat in the latter half of 2005. Its stock price has just sat around doing very little in 2006. Meanwhile their revenue and profit growth continues and they're expanding overseas. It's undervalued.

OK, I'm biased against this one. In 2000 they bought out the company that I used to work for, and exhanged AIG stock for the old HSB stock, defining the AIG as worth $98. Yeah right! Since when? They may have decent financials now, and it may go up, but I have no faith that they will outperform the S&P. There are a lot of better places for my money.