Big Upside Potential for American International Group, Inc. (AIG)

Big Upside Potential

Price to book value ratio has been traditionally considered a good tool to analyze insurance companies. As we can see, AIG used to trade at a considerable premium to competitors like The Travelers Companies, Inc. (NYSE:TRV) and The Allstate Corporation (NYSE:ALL) due to its higher profitability and international growth prospects. The situation is now reversed, as AIG trades at a big discount to book value in the area of 0.6.

Not only is AIG comparably cheap versus other companies in the industry, but the whole insurance sector is trading well below pre-crisis valuation levels. If the economy in general and real estate sector in particular continue improving, insurers like Travelers and Allstate have room for valuation expansion, as investors start pricing in a more optimistic scenario. Needless to say, this should be bullish for AIG too.

Besides, the company has been aggressively repurchasing stock over the last year. Since those repurchases are done at a price to book value ratio below 1, they increase book value per share. The company gets more than $1 in accounting equity value for each dollar it uses to buy its own stock, so as long as the purchase price is so low a buyback will be very positive in terms of book value per share.

In addition to strengthening its balance sheet and refocusing on business profitability, AIG has been capitalizing the opportunity to repurchase shares at depressed levels, and that’s a smart move that has the potential to benefit shareholders in a big way in the middle term.

Bottom Line

AIG has made a remarkable recovery over the last years, and the company is now focusing on business profitability and rewarding shareholders with stock buybacks at conveniently low prices. Considering that they are still trading at bargain valuation levels, shares of AIG are offering an attractive upside potential for investors.

The article Big Upside Potential for AIG originally appeared on Fool.com and is written by Andrés Cardenal.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Biotech Insider Alert - $6 Stock To Hit $40

$200 Million Dollar Healthcare Hedge Fund's #1 Best Idea Right Now

The best healthcare hedge fund out there right now is one of the largest shareholders in this biotech stock. The fund returned more than 20% in each of the last 2 years with a virtually fully hedged portfolio, and it's sending out a BUY signal on this biotech stock. Get your FREE REPORT today (retail value of $300)

This is a FREE report from Insider Monkey. Credit Card is NOT required.
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The Best Romance Movies of all Time

The Most Wanted Drug Lords

The Oldest Money Managers

The Greatest Directors in the World

Largest Animals in the World

World’s Most Expensive Desserts

Best Selling Comic Books of All Time

A-list Actors who Sabotaged Their Career

Rappers With a College Degree

The Best Jazz Albums of all Time

The Most Influential Jazz Musicians

The World’s Most Famous Photographers

The Best Oscar-Winning Songs

Most Influential Choreographers Ever

Most Expensive Department Stores in the World

The Most Expensive Stolen Paintings in the World

The World’s Most Expensive Teas

Top Oscar Record Holders

The Most Expensive Flowers in the World

Countries With a Booming Film Industry

Most Expensive Cupcakes in the World

Uncommon European Escapes

The Most Stolen Artists in History

Best Travel Destinations in Australia

World’s Most Expensive Musical Instruments

World’s Most Famous Animals

Most Expensive Cakes in the World

Most Expensive Kosher Champagne in the World

Most Expensive Kosher Wine in the World

The Most Surprisingly Dark Fairy Tales

Most Popular Travel Destinations in Asia

The 10 Most Expensive Dresses Ever Worn to the Oscars

World’s Most Visited Art Museums

Best Countries for Photographers to Work in

Best Paid Jobs in the Film Industry

The Most Renowned Recovered Paintings Ever

Child Stars That Turned out Just Fine

Books That Were Banned in the Past Century

World’s Richest Dancers

Best Remedies against Bad Breath

Foods That Improve Your Skin Texture

Best-Selling Children’s Books of all Time

Foods That Boost Your Libido

Best-Selling Books of all Time

The Most Expensive Academy Awards Jewelry in History

Most Expensive Japanese Restaurant In New York City

The Best B-Boy Movies

Most Awesome Hip Hop Documentaries

Foods That Stain Your Teeth

Richest Doctors in the World

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 129% in 2.5 years!! Wondering How?

Download a complete edition of our newsletter for free!