Stay Away from AIG - Barron's

Discussion in 'Stocks' started by ASusilovic, Aug 30, 2009.

  1. Shares of AIG (AIG) have surged 53% in the last week, but Barron's Andrew Bary warns the stock's spectacular gains can't erase the fact that the company's likely to face continuing troubles.

    The government has an 80% equity stake in the insurer and shares look overpriced. The current rally is likely a combination of a short squeeze, hope for a larger role for former CEO Hank Greenberg and optimism that a recovering market will help AIG's portfolio improve.

    Given its complicated financials and limited communication from management, it's difficult for investors to evaluate the financial health of AIG. After backing out the government's $42B in preferred stock, AIG's common equity falls to $15B, or $21.80 per share. Stripping out $6.4B of goodwill assets and around $14B of a "prepaid commitment asset" connected to the government's backstop of AIG, Barron's calculates the company has negative tangible common shareholder equity.

    Investors interested in AIG would do better to consider the company's debt, rather than its common stock. In particular, AIG has 8.25% bonds due in 2018 trading for around 80 cents on the dollar, for a yield of 11.84%. AIG also has junior subordinated debentures (AVF) that yield 13% and are senior to the government's preferred shares, though they rank below senior debt.
    In early July, Joshua Shanker, then with Citigroup, wrote there was a "70% chance that the equity at AIG is zero" and cut his price target to $14.

    AIG: Q2 EPS of $2.57 vs. consensus of $1.67 (may not be comparable). Revenue of $29.5B (+48%) vs. $26B. (PR)
    New CEO Robert Benmosche has promised to repay the government in full and still turn a profit for shareholders. However, the fact that AIG used $2.4B from recent asset sales to improve the capital position of its property-casualty unit rather than paying down some of its government debt raises questions about the insurer's ability to repay its bailout.
    Benmosche previously served as MetLife's (MET) chairman and CEO, and is still a MetLife shareholder. This could spell trouble for talks about a potential deal to sell AIG's Alico unit to MetLife.
  2. yonisin


    I don't disagree, but it was profitable for me day-trading AIG on Friday; actually it offset my other bad trades, so I made a little for the day. Considering where I was at one point on ERX, it was appreciated.
  3. I heard a great strategy from the most consistent and probably most successful trader I ever personally knew.

    Anyways, he and his buddies used to read Barron's on the weekend and find what stocks their analysts/experts recommended and disliked. They wrote down all the "buys" and come Monday shorted all those stocks. They also wrote down all the "sells" and went long on Monday. It was a quite profitable strategy. Analysts are generally late to the party.
  4. Arnie


    An even better fade used to be Business Week. Haven't followed it in years, but that was money in the bank.
  5. Tide31


    Well Barrons also said to sell Citi here today too. We'll see. I haven't seen the article but all I have seen is that they said it has negative Net Tangible Assets, don't know if they put a number on it or are guessing. It says they are positive $50bil at end of June on their published 10Q balance sheet. Gov't has a warrant for 79.9% of co. Maybe this is not reflected.

    On Feb 17, '08 Barrons wrote an article that AIG was "A Screaming Buy" on selloff. It was at $45.50 then. They said there was 50% upside in it. This is $940 and $1,410 post reverse split. 6 months or so later it was $1.

    Sorry I don't have link, you can google 'AIG -Barrons -screaming buy' to see it. I'd say they lost a little credibility from that call.
  6. Barron's as a whole isn't nearly as good as it used to be.

    Alan Ableson is a perma bear. His relentless bearishness even as the market rallied 50%+ is dreadful. Hey Alan, ever hear of bear market rallies? Try going long for a month or two every once in a while.

    I do like Michael Santolli. He seems like the only writer tuned into the real trading world.

    The rest of the writers are nothing more than your average (awful) wall st. analyst. All they do is pitch bullshit about a small cap drug company with an FDA hearing coming up or an enticing dividend yield from some dogshit mega cap company.
  7. was money in the bank but I have not followed it in years. LOL

    ET is getting ever more moronic.

  8. Zodiac4u


    What Andrew Berry says doesn’t mean squat!

    After taking a hit on our 401k's and IRA's. Aig, fanny, Freddy and Wachovia have brought our accounts back up and erased all the losses the funds have created. With Wachovia being gone now we will still trade Aig, Fanny and Freddy as long as they are still afloat and we will continue to make money on them.