With shares of American International Group (NYSE:AIG) trading around $33.12, is AIG an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:
C = Catalyst for a Stockʼs Movement
AIG has a number of catalysts coming up that should attract investors’ attention. As the Treasury continues to sell its holdings of AIG, the government is expected to exit its AIG investments sometime soon. Analysts have mentioned this as a major overhang in the stock.
AIG is also in the process of arranging an initial public offering for its aircraft leasing unit, ILFC. This should bring an influx of cash into the company to continue buying back shares.
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Finally, AIG is continuing to shed its non-insurance assets. This should streamline the company and make it more attractive from an investor’s perspective. Instead of purchasing a collection of unrelated businesses, investors will now be purchasing solely an insurance company.
T = Technicals on the Stock Chart are Strong
AIG has greatly outperformed the S&P 500 over the past year and has been relatively on par with the S&P 500 over the past three months.
Over the past year, AIG is up 57.83% while the S&P 500 is up 18.47%. Year-to-date, AIG is up 38.55% while the S&P 500 is up 10.88%. Over the past three months, AIG is down 1.74% while the S&P 500 is up 0.39%. When you look at two-year returns, AIG is down 19.7% while the S&P 500 is up 19.21%.
AIG is currently trading slightly below its 50-day SMA of $33.85. It’s trading at right about its 100-day SMA of $33.30. It’s trading more than a dollar higher than its 200-day moving average of $31.84.
Although AIG has run into a bit of weakness recently, the stock has been very strong over the past 52 weeks and the longer term trends tend to win out in these situations.
T = Trends Support the Industry in which the Company Operates
Insurance companies are here to stay. Their services are always necessary for both institutions and individuals. Although catastrophic events do occur, such as Hurricane Sandy, that throw off the economic equilibrium in the sector, they are far and few in between. And the insurance companies that are disciplined with their underwriting practices tend to come out stronger following catastrophic events as the weaker ones are forced out.
Insurance are also some of those most stable companies in the marketplace and are a favorite of Warren Buffett, one of the world’s greatest investors. Although Buffett is not directly involved with AIG, his investment vehicle Berkshire Hathaway (NYSE:BRK.B) owns a number of companies in insurance, including Geico and General Re.
S = Support is Provided By Institutional Investors & Company Insiders
AIG is owned by some of the biggest names in the investment world. The is owned by George Soros, Steven Cohen of SAC Capital, Daniel Loeb of Third Point, as well as well-known value investor Bruce Berkowitz. It is always to be on the same side as smart money, and well, these funds and investors have proven to be smart money over and over and over again. Having them oversee management provides further support of continued shareholder-friendly moves by management.
Insurance services are going to continue to be in demand by consumers and . As AIG continues to streamline its operations and use its excess cash in shareholder-friendly ways, the supply of AIG’s shares on the market should continue to shrink, providing a nice boost to shareholders. That combined with the points mentioned above, make AIG an OUTPERFORM in the long run.