While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a look at particularly stock-shaking analyst upgrades and downgrades -- just in case their reasoning behind the call makes sense.
What: Shares of American International Group Inc (AIG +1.14%) gained about 2% in premarket trading Wednesday after Goldman Sachs upgraded the insurance giant from neutral to buy.
So what: Along with the upgrade, analyst Michael Nannizzi raised his price target to $63 (from $50), representing about 20% worth of upside to yesterday's close. So, while contrarian traders might be turned off by AIG's price strength during the past year, Nannizzi's call could reflect a sense on Wall Street that its growth prospects still aren't fully baked into the valuation.
Now what: According to Goldman, AIG's risk/reward trade-off is rather attractive at this point. "We believe AIG will generate SIFI-high capital and is best positioned among SIFI candidates to deploy capital accretively into its core businesses if large-scale buybacks are not a near-term option," said Nannizzi. "Our positive stance on AIG does not represent a more favorable view of regulation than we had previously held, but instead is based on our view that AIG's 'second best' deployment option is underappreciated by investors." Given AIG's still-cheapish price-to-book of 0.7, it's tough to disagree with that conclusion.
