American International Group, Inc. (AIG): Fallen Blue Chip Could Stage a Double-Digit Rally This Year

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In an ideal world, American International Group, Inc. (NYSE:AIG) would simply focus all of its financial firepower on buybacks, right up until the shares trade at tangible book value. But as Benmosche noted earlier, both buybacks and dividends will be on the table in coming quarters.

What kind of buybacks and dividends are we talking about? Consider that AIG is generating roughly $7 a share in free cash flow to its balance sheet. If half of that is earmarked for a buyback and the other half for a dividend, American International Group, Inc. (NYSE:AIG) shares could offer a dividend yield of 7.8%.

American International Group, Inc. (NYSE:AIG) will soon meet with regulators to ensure that the balance sheet is now in fighting shape, so investors may see movement on this front as soon as this summer.

To be sure, management may start slow and fully part with its annual free cash flow in a year or two. Still, once investors do the math on what kind of dividend and buyback this insurer plans to pursue over the long haul, they’ll snap up these shares quickly, pushing them toward book value.

On the heels of an expected dividend and buyback announcement, I believe shares could rise from a recent $45 to $60, representing more than 30% upside. That move could happen quickly or take several quarters to play out. That’s why you should sit tight and be patient, even if shares only make a modest initial upside move. Regardless, you want to be in this stock before such plans are announced.

Recommended Trade Setup:

— Buy AIG up to $50
— Set stop-loss at $40
— Set initial price target at $60 for a potential 20% gain in 3-6 months

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This article was originally written by David Sterman and posted on ProfitableTrading.



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