Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



3 Reasons to Buy AIG

Since the financial crisis, American International Group (NYSE: AIG  ) has had a wild ride. From a (split-adjusted) pre-crisis high of $1,547 per share to a low of just $8.22 per share in 2009, to the current share price of around $52, AIG has taken its shareholders on an ugly ride. Still, there are some compelling reasons now is a good time to invest.

The government has been paid off!
As a result of the crisis, AIG was forced to accept federal aid of over $182 billion, which gave the U.S. Treasury about a 92% stake in the company. As of about a year ago, the government has exited its entire stake and left with a profit of $22.7 billion for taxpayers. 

Post-crisis restructuring: AIG is a much stronger company now
In order to make itself stronger and to repay the bailouts, AIG has sold off many of its assets over the past few years, including its foreign unit, American Life Insurance Company, for $16.2 billion and its Japan-based life insurance subsidiaries for $4.8 billion. 

The company is in the process of dismantling its AIG Financial Products Group, which provides credit default swaps on collateralized debt obligations (CDOs), some of the instruments that got AIG into trouble in the first place. At the end of last year, the company still had a derivative assets portfolio of $97.9 billion, which AIG has said will take some time to unwind. At its peak, the unit's portfolio was valued at $2.7 trillion, so the company has come a long way toward getting these types of assets off of its books.

It's cheap
Perhaps the most compelling reason to buy AIG is its valuation, which is extremely cheap. In fact, AIG is so cheap right now, the discounted share price far outweighs any continuing risks the company faces. 

AIG has a tangible book value of over $67 as of the most recent quarterly report, so at the current share price, the company trades at just 77.8% of its tangible book value. This is tremendously low, and the value could get better in the near future. AIG is actively buying back its shares and repurchased 4 million shares last quarter as part of an announced $1 billion buyback plan. One of the best things any company can do when it trades below its inherent value is to buy back shares. 

For comparison's sake, one of the most undervalued companies in the market right now is Citigroup, which trades for just over 100% of its tangible book value, which is a historically low level for the company. AIG has a similar risk to Citigroup, whose Citi Holdings unit is in the process of being wound down and contains the company's "legacy" assets.

Foolish final words
Expectations seem to be very low for AIG, and shares could remain at these depressed valuations until actual performance and earnings improve. But as soon as AIG starts paying out more than $0.10 per share in the form of a quarterly dividend, market confidence will improve. Also, its earnings expectations strike me as rather low. If the company ends up beating estimates this year, things could get interesting in a hurry.

Will AIG rejoin the list of great dividend stocks?
One of the dirty secrets that few finance professionals will openly admit is the fact that dividend stocks as a group handily outperform their non-dividend paying brethren. The reasons for this are too numerous to list here, but you can rest assured it's true. However, knowing this is only half the battle. The other half is identifying which dividend stocks in particular are the best. With this in mind, our top analysts put together a free list of nine high-yielding stocks that should be in every income investor's portfolio. To learn the identity of these stocks instantly and for free, all you have to do is click here now.

Read/Post Comments (0) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2793286, ~/Articles/ArticleHandler.aspx, 8/28/2015 5:46:21 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Matthew Frankel

Matt brought his love of teaching and investing to the Fool in order to help people invest better, after several years as a math teacher. Matt specializes in writing about the best opportunities in bank stocks, real estate, and personal finance, but loves any investment at the right price. Follow me on Twitter to keep up with all of the best financial coverage!

Today's Market

updated 8 hours ago Sponsored by:
DOW 16,654.77 369.26 2.27%
S&P 500 1,987.66 47.15 2.43%
NASD 4,812.71 115.17 2.45%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

8/27/2015 4:00 PM
AIG $61.11 Up +1.95 +3.30%
American Internati… CAPS Rating: ****
C $53.44 Up +1.16 +2.22%
Citigroup Inc CAPS Rating: ***