For its bad behavior and subsequent bailouts during the financial crisis, few companies are more infamous than American International Group (NYSE:AIG). However, after several dilutive share offerings, the company is finally beginning to look like it is on sufficiently sound financial footing to again become a mainstream investment.
AIG in 2013
As it has done for many years, AIG provides a variety of insurance and financial services in countries all around the world. During the financial crisis years, an abundance of insurance-like products triggered an out-of-control downward spiral that caused the company to first complete a secondary share offering, then accept a line of credit from the Federal Reserve.
In order to repay the Fed's loan, which was completed in late 2012, the company has been selling off parts of its business, issuing debt, and offering new shares. In total, AIG's federal aid was valued at about $182 billion, giving the government roughly 92% of the voting power. This required a tremendous restructuring effort, and AIG looks a lot different today than it did before 2007.
The company sold Hartford Steam Boiler in 2008, AIG Life Insurance of Canada and Transatlantic Holdings in 2009, and ALICO for $16.2 billion in 2010. Most recently, AIG has sold most of its Asian business.
So, what is left? Still the 62nd largest public company in the world, according to Forbes, AIG provides property-casualty insurance, life insurance, retirement services, and mortgage insurance. Essentially, the company now looks more like what insurance companies are supposed to look like.
Other ways to go
There are no other U.S.-based competitors of the size and scope of AIG, but there are some smaller companies with a similar mix of products and services. For instance, Hartford Financial Services (NYSE:HIG) is a property-casualty leader and also offers life insurance, group benefits, and its own line of mutual funds. Hartford has undergone a restructuring of its business and has sold off some of its noncore business units (although not nearly to the extent AIG has).
As a result, the company's tangible book value has dropped considerably over the past several years, currently sitting at $40.69. This implies that shares trade at a 17% discount to TBV, much lower than historic levels. Shares also trade for just 10.3 times 2013 expected earnings, but this figure is in line with the company's historic valuation multiple.
Loews (NYSE:L) is a viable alternative that has exposure to other businesses besides insurance. Property-casualty insurance makes up the majority of Loews' income, with the rest coming from offshore oil drilling (21%), natural-gas pipelines (8%), and hotels (3%). While it is nice to have the added diversity, especially if you are not fully sold on the health of the financial sector, it makes comparing valuations tricky; since this isn't exactly an apples-to-apples comparison (drilling companies and financials are best judged by different valuations). Still, at 17 times this year's earnings and priced right at book value, I can't help but think shares may be a little pricey at current levels relative to AIG.
Get in at a discount
Compared to the other two, AIG is cheap. With a tangible book value of about $66 per share, AIG trades for 22% below TBV, a nice discount to its most attractively valued competitors. It seems like most insurance companies are trading for right around tangible book, so this implies nice potential upside for shareholders who get in at the current low price.
While AIG is still on a lot of investors' "blacklists," there is definitely a good value to be had here. Even after the gains of recent years, shares are well worth a look at the current price.