American International Group (AIG)

Low obsolescence risk: As an operator in the insurance market, AIG does not need to worry about the introduction of new technology that will suddenly make insurance obsolete. Nor does the company need to fear a sudden change in demand for insurance. So long as the company keeps providing its diverse insurance services, it has a very low risk of becoming obsolete.

Fannie Mae (FNM) and Freddie Mac (FRE) both had their credit limits uncapped for three years by the U.S. Treasury Department in late December 2009, meaning the government has made the pledge to prop up both companies, regardless of the losses. In other words, there is no way FNM or FRE to fail. If this is any indication of the support the government might lend to AIG, then there is little chance that AIG would be allowed to go under as well.

In addition, Obama's "pay czar" Kenneth Feinberg has approved a $4 million pay increase for a "top executive of AIG" that most believe is current CEO Benmosche. With the approval of this pay increase and long term compensation package, AIG was able to retain this executive who was planning to leave the company. Continuity, especially at top level management is critical for the turnaround at AIG and long term success.

The risk to reward possibilities are acceptable. As a long time investment the possibilities are great. Short terms will be tough due to potential legal and structuring issues.

Trading below price-to-book even though Cash (current liquid) to Debt (short term + long term) ratio is same as PRU.

AIG: 0.82 MET: 1.11 PRU: 1.34 TRV: 1.01 BRK-A: 1.48 ALL: 1.26 ACE: 1.01

Although AIG issued a large number of derivative contracts, many of which led to disaster, it also issued dozens of derivative contracts that have been generating huge gains. However, many of these contracts had clauses allowing the counterparty to exit the contract if AIG's creidt rating fell below a given level. After lengthy negotiations, Barclays has agreed to act as an intermediary between AIG and their counterparties, essentially agreeing to "rent" its higher credit rating to AIG for a fee. This deal allows AIG to continue to profit from favorable changes in its derivative deals, some of which have earned AIG over $1 billion.

Short-Term: Volatile (9-22% changes), but unlikely to drop below $30. Buy it when it's low (< $35). Sell it when it's near or above $39.

Long-Term: Selling at a discount. Recently reported actual profit for the second consecutive quarter. Revenue grew 189%. Is selling at a discount (down 9%) due to underestimation of the weak job market (192k instead of 175k jobs).

Domestic and international diversity of assets is key for AIG: Strong international positions like its holdings in China allow AIG to weather domestic storms of hurricanes and regulatory scandals, for example. Its various subsidiaries and holdings in other markets give it the ability to weather prolonged losses in the causal-insurance market.

use to trade as high as $2000 a share,,just think about it. what other stock traded for well over say $1400 for as long as it did and is now selling for less than $55 ..those nuts that bought at $1400 will be running back

With AIG’s jump this morning, investors could be sitting on their second 430%+ gain in five months. In fact, if you’d picked up AIG at under $8.5 a share, you’d be sitting on a gain of almost 550% right now. Not bad for a recession and bear market.

Who knows if this trend will continue, but it seems like every time the markets consider AIG out for the count, it resurges even stronger. ^[1]

reference

1. ↑ http://www.investmentu.com/IUEL/2009/August/aig-gains-430plus.html

Less complicated and convaluted to bail then let sink in current turbulent waters

They cant let it fall, that alone makes it cheap at this price.

Read the headline that's not irrational. The gov is into it for over $100b. nuff said

ILFC a strong company component: AIG’s International Lease Finance Corporation (ILFC) is the world’s largest aircraft leasing company, with net income growing 18% in 2006 to $499.3 million. While over the long term its performance has been strong, recently it signed a deal for 74 Boeing 787 Dreamliners, and is expecting a batch of 10 Airbus A380 airliners by 2013, tying itself to the newest additions to the industry.