If you are looking for the best ideas for your portfolio you may want to consider some of Mittleman Brothers top stock picks. Mittleman Brothers, an investment management firm, is bullish on American Equity Investment Life Holding Co (NYSE:AEL) stock. In its Q2 2019 investor letter – you can download a copy here – the firm discussed its investment thesis on American Equity Investment Life Holding Co (NYSE:AEL) stock. American Equity Investment Life Holding Co (NYSE:AEL) is a life insurance company.
In August 2019, Mittleman Brothers had released its Q2 2019 investor letter. American Equity Investment Life Holding Co (NYSE:AEL) stock has posted a return of 35.5% in the trailing one year period, outperforming the S&P 500 Index which returned 16.1% in the same period. This suggests that the investment firm was right in its decision. On a year-to-date basis, American Equity Investment Life Holding Co (NYSE:AEL) stock has risen by 0.4%.
In Q2 2019 investor letter, Mittleman Brothers said the Mittleman Global Value Equity Fund – Class P posted a return of -4.6% in the second quarter of 2019, underperforming the S&P 500 Index which returned 4.30% in the same period. Let’s take a look at comments made by Mittleman Brothers about American Equity Investment Life Holding Co (NYSE:AEL) stock in the Q2 2019 investor letter.
“MIM initiated a position in American Equity Investment Life Holding (AEL) in Q2 2019. AEL is one of the pioneers in fixed indexed annuities (FIAs) and the last pure play businesses of its type. AEL has been an attractive organic growth story in insurance/ retirement savings products since these products originated in around 1995. It has since steadily taken market share from variable annuities. The Board of AEL has an average age of 70.5, average tenure of 13.5 years and average share ownership of $3.2M each (a total of about $32M in AEL shares is held by the entire board).
Chris Mittleman learned about this business when Harbinger Group (HRG), now Spectrum Brands (SPB), bought Old Mutual Plc’s U.S. life insurance business in 2010 for $350M and renamed it Fidelity Guarantee and Life. HRG took it public in 2013 and sold it for a huge gain in May 2017 to a Blackstone-led SPAC now called FGL Holdings (FG) at 11.3x EPS (2016) and 1.13x BV (ex-AOCI) for a 10% ROE business.
AEL currently has an ROE in excess of 14%. At the same multiple of 11.3x EPS (est. $4.00 in 2020) it should trade at 1.5x book value (ex-AOCI) of $30, or $45. That is +66% from AEL’s 30 June 2019 price of $27.16. MIM paid just over $29 for the position.
In May 2018 AEL was approached by unnamed buyers but no deal materialised. It appears (from court filings) that Athene (ATH; a giant in this business that is controlled by Apollo) was amongst the bidders. On 7 June 2019 the company announced it was no longer in talks to be sold and the stock dropped from $30 to $27.
If no transaction occurs MIM is happy owning the stock as it likely will continue its growth trajectory for years to come as an aging population in the U.S. increasingly needs FIA products. But given the age and heavy ownership of the directors and management, a sale may be more likely than not at some point in the not too distant future.”
In Q1 2020, the number of bullish hedge fund positions on American Equity Investment Life Holding Co (NYSE:AEL) stock decreased by about 29% from the previous quarter (see the chart here), so a number of other hedge fund managers don’t seem to agree with AEL’s growth potential. Our calculations showed that American Equity Investment Life Holding Co (NYSE:AEL) isn’t ranked among the 30 most popular stocks among hedge funds.
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Video: Top 5 Stocks Among Hedge Funds
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Disclosure: None. This article is originally published at Insider Monkey.