There are some companies that the average investor simply
will not touch; American International Group is one of them. AIG is, after all, a poster-child
for the excesses of the 2008 banking fiasco. While America burned, AIG executives
dressed in togas and had grand parties – literally!
At The Frost Report, however, we recognize that companies
the public hates are often good bargains.
When the numbers make sense, we let bygones be bygones.
This Wednesday, AIG paid back the US Treasury an additional
$1.5 billion in TARP money, eliminating the government’s preferred share stake. Tim Massad, the
Treasury department’s assistant secretary for financial stability, had this to
say about the event: “In the dark days of the financial crisis, when commitments to AIG
totaled $182 billion, few would have believed that we'd already be able to
reduce that amount by more than 75 percent, or that we may be able to recover
every single dollar invested in the company.”
And yet they have – ahead of schedule.
Consider these statistics: AIG has a book value of $55 per
share, yet today’s closing price was only $28.27. In what always strikes me as one of the wonders of Wall
Street, you can literally buy $55 worth of goods for $28.27. Of course, "book value" is useless if AIG is forced to have a fire sale on its goods and sell them for less than cost. So, is the company profitable?
AIG had annual sales of over 64 billion dollars in 2011,
with profit of $15 billion on 1.9 billion shares outstanding. Return on equity also handily beat the market at
26%.
Like other companies in the pariah class, there is no big
rush to buy AIG. The government will be
selling its stake for some time, and the stock will not likely jump until that
selling pressure is over. Having said
that, the government has done a good job of letting other companies it owns (like
Citi) rise steadily in value, selling them in a mellow and responsible manner.
____
"I would suggest the first thing that would make me feel a little bit better toward them [AIG executives] is if they'd follow the Japanese example and come before the American people and take that deep bow and say, I'm sorry, and then either do one of two things: resign or go commit suicide."
Senator Charles Grassley, 2009
____
Disclosure
Do not buy stocks, or take this or any other financial advice without doing your own analysis; including, but not limited to: reviewing business models, financial statements, management style and philosophy, recent developments, market macroeconomic analysis, and chart analysis. If you do not know how to do these things, you shouldn't be buying stocks in the first place. Seek the advice of professionals, as appropriate.
Do not buy stocks, or take this or any other financial advice without doing your own analysis; including, but not limited to: reviewing business models, financial statements, management style and philosophy, recent developments, market macroeconomic analysis, and chart analysis. If you do not know how to do these things, you shouldn't be buying stocks in the first place. Seek the advice of professionals, as appropriate.
____
