Join The Motley Fool for a conversation with author, investor and philanthropist, Whitney Tilson. In addition to managing Kase Capital, Whitney has coauthored More Mortgage Meltdown: 6 Ways to Profit in These Bad Times, Poor Charlie’s Almanack, and most recently The Art of Value Investing, a collection of interviews with over 200 successful value investors.
A full transcript follows the video.
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Brendan Byrnes: Let’s switch gears and talk about American International Group, Inc. (NYSE:AIG), which I believe is your biggest holding in Kase Capital. What are some catalysts, going forward for this company?
Whitney Tilson: I see a number. First of all, the business is just going very well. They just reported earnings last week. They blew buy consensus estimates by about 50%. The combined ratio — one of the key metrics for insurance companies — dropped about three full percentage points.
Certainly, just underlying performance of the business, and generally insurance, the kinds of insurance that they’re in, pricing is strengthening around the world. It’s not just American International Group, Inc. (NYSE:AIG) that’s benefiting, but it helps to have a tailwind for the industry.
Secondly, American International Group, Inc. (NYSE:AIG) does not pay a dividend, has not been buying back stock, other than the government auctions as the government exited. But now I think their balance sheet is strong enough, now that the government has been completely bought out of American International Group, Inc. (NYSE:AIG), I think the company has a lot of flexibility to do some good things on the capital front.
Then lastly, just cheapness. The stock’s trading at about $0.66 of book value, so about a third discount to book. This is in a world where most insurers are trading at one times book value, so right there I see 50% upside, just on the valuation multiple, on a multiple of book.
I think there are two reasons why it’s cheap. One is just general historical taint. People still think of American International Group, Inc. (NYSE:AIG) as this ward of the government and an immensely complex business. Neither of those is true anymore, but old perceptions die hard.