AIG is a 'buy' as the US unloads shares

The bailed-out insurer is in much better shape than before.

By Jonathan Berr Sep 10, 2012 1:42PM
Insurance, copyright Hemera, age fotostockShares of American International Group (AIG) are tumbling Monday after the U.S. government announced plans to sell $18 billion of the insurer's stock that it acquired during the 2008 bailout.

The sale, which comes amidst a turnaround, would leave Uncle Sam with a 23% stake in the New York company.

While the government's ownership casts a shadow over AIG, it isn't scaring some investors, who have seen the company's share price surge by more than 40% this year.

During the last quarter, AIG's profit more than doubled, thanks in part to investment gains and better luck (no Japan earthquake costs).

Wall Street expects the good times to continue as the federal government prepares to exit AIG by 2013 -- though investors would prefer it to occur by the November election. The timing of the sale, however, is curious.

As Reuters points out, "The sale, Treasury's biggest sell-down of its AIG stake so far, comes as President Barack Obama campaigns for a second term and has been forced to defend his support of decisions to use taxpayer money to prop up companies during the financial crisis."

Many experts argue that the Wall Street bailout helped prevent a second Great Depression. Uncle Sam has also profited from many of the investments, as distasteful as they were to many investors. A recent report from the Treasury Department estimates the potential profit at $163 billion over the next decade, in a "best-case scenario." The government still owns 74% of Ally Financial and $3 billion worth of preferred securities in Citigroup (C).

The average 52-week price target for AIG stock is $37.73, about 12% above where it currently trades. Wall Street analysts are expecting AIG to earn 67 cents in the current quarter, reversing a year-ago loss of $1.60, on revenue of $8.71 billion, a decline of 3.7%.  The stock is cheap, trading at a price-to-earnings ratio of 3, near its five-year low, according to Reuters.

AIG is buying $5 billion worth of stock in the latest sale, funded through the recent disposition of part of its stake in Asian insurer AIA. Still left undecided is the fate of airline-leasing business ILFC. AIG canceled plans to sell shares in the unit after market conditions deteriorated.

The three main AIG businesses -- U.S. life insurer Chartis, annuity company SunAmerica and mortgage insurer United Guaranty -- each posted solid results in the last quarter and should continue to do well, provided that the economy does not falter too badly.

AIG is not a stock for the faint-hearted or the impatient. The company, though, appears to be headed in the right direction.

Jonathan Berr does not own shares of the listed shares. Follow him on Twitter@jdberr.

Tags: aigC
Sep 10, 2012 9:21PM
AIG is still as crooked as they come. A friend is involved in a lawsuit from a severe injury, AIG bribed someone so that no one involved in the case is allowed to mention that they are the insurance company of record for the defendant. "It might prejudice the jury to know that", I plan on sitting outside the courthouse with a sign so everyone will know.
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