Today that mean, old, rotten, Goldman Sachs company decided to downgrade AIG from a Buy to a Neutral rating. They kept their price on the AIG ($46 for the 2013 year) intact however.
So why would Goldman Sachs do that? Are they really just mean, or do they hope to create a buying opportunity for themselves? If they are trying to create a decline in the stock as a buying opportunity, it’s working… the stock is down over 3% so far today.
I don’t think that AIG really deserves to be downgraded, and I really do think Goldman is smart enough to create a buying opportunity for themselves by dropping their rating to neutral.
So what’s a small potatoes investor like me to do? Well, in my case I’m just going to let the stock ride out the Goldman storm. If it drops more than 5%, I might even buy more of the stock! After all, from the start up whenever I started investing, I’m up over 20% (or was)… the stock is obviously a winner.
Why do I have such conviction in the stock?
- Even with half the non-core businesses that It owned, it’s still work many more times than the book value, and it’s historic prices.
- Robert Benmosche is their CEO, and he has a proven track record.
- Even if the stock climbs to half it’s former valuation, it’s still a multi-bagger.
- It’s making money, good money!
- Sometime in the future Robert will either do stock buybacks or start back up Dividends
- It’s due!
For all of these reasons and more I believe that attack today on AIG was bogus!
What are your thoughts on this Cinderella Stock called AIG?
Wow, I was shocked when some the very top executive officers were wooed away from AIG by that sexy company called Berkshire Hathaway.
Some people are asking if it reflect poorly on AIG that some of their executives jumped ship. Well, in my humble opinion, it means that AIG must have had excellent employees adding exceptional value for Warren’s Berkshire (sounds like something from Tolkien, huh…) to woo them away. To me it was obvious that AIG must have done something right for Berkshire to steal them away, so how can that be bad!
AIG is announcing their 1st quarter of 2013 earning this coming Thursday (5/2/2013). While I don’t expect them to reinstate their dividend, I remember the CEO stating that they will be doing either a stock buyback, or retiring debt… Both of which I consider a win! Hopefully the effects of the hurricane Sandy didn’t hit them in Q1 of 2013, but we’ll see.
As much as I’m looking forward to the results of this quarter, I’m more interested in Q2 or Q3. In one of those quarters, AIG sounds like they will reinstate their dividend, and all will be well again!
Disclaimer: Yes I am long AIG.
Let me start by saying that I almost called this article “Why Robert Benmosche is a Hero” because Robert came in rejuvenated AIG so that it’s a robust company that totally paid back the government at a profit, all while he was and is attacked constantly by the Press and the Government.
Typically I don’t get involved in such matter, but during a CNBC interview, Mr Benmosche’s shared some of this thoughts on the AIG recovery, and the mistreatment and misrepresentation of the AIG employees that reflected my opinion. What I found amazing is the common sense beliefs that I had, were pretty much confirmed by Mr. Benmosche. With me at home, I had no direct connection to the AIG employees, but I felt that people were people and that the press and others opinion of AIG was offbase. Actually I feel the same way about a lot of financial firms that have been vilified in a way too over-simplistic representation.
If you’re interested in reading the article, check this out: “AIG CNBC interview“.
Here are some extra points about Robert Benmosche:
- He was retired and perfectly content with his life since he already made a lot of money as a CEO previously.
- He was asked to take the helm of AIG and did so even though he has cancer. If I had cancer and was already wealthy, I’m not sure if I would be as free with my time. Imagine if you had cancer and was asked to help save the United States… would you do so? This is a large part of the reason I view Robert Benmosche as a hero.
- He’s rich, he didn’t need to run AIG after the problems, but he felt that it was the right thing to do.
- Robert replaced all of the causes of the excessive risk at AIG, so the remaining employees were rock solid and great employees.
What is interesting in my opinion is that there were those in the media and government that continued to attack AIG (and others) after they received the bailout. To me I thought that was pretty stupid. Bailout a struggling company and then attack it with lawsuits and reprimands, what sort of bizarre logic is that?
If you get a chance, please consider clicking on the CNBC link above. I especially like Mr. Benmosche’s analogy of the way the government gave AIG the bailout, then continually tried to poke AIG’s eyes out. What’s sad is that the government and media attacked Robert and the remaining AIG employees, even though they didn’t cause the problems. I think it’s very unfair to attack Robert and the remaining employees after the employees that caused the problems weren’t there any more. The kicker is the treatment of Robert Benmosche, they attacked him for stuff that happened at AIG before he came in to help save AIG… That’s like superman coming in to save the day, then the police firing bullets at him like he’s the bad guy. Doesn’t make sense, does it.
What’s especially amazing is that work peers I know don’t realize the great investment AIG is now. They still think that the same old crew is running AIG, but that’s not the case and if you look at their record and stats as of lately, it’s pretty obvious!
I find it especially sad is that the media and government misrepresent the company to make the public watch or like them. To me this is somewhat dishonest and demonstrates weak ethics.
Disclaimer: I’m long AIG, as I view it as a submerged fishing bobber waiting to pop up to the correct stock valuation.
As I mentioned the article called “Is AIG The Perfect Stock“, I really do think that AIG is a great stock, but lately I’ve read something that concerns me!
That something is that AIG has now replaced Apple as the top stock held by the largest hedge funds! And unfortunately, I’m the late guy to the party as most of the major hedge funds have been in the stock for quite a while. Billionaire investors like Leon Cooperman is also betting on the AIG horse. At least I’m in good company, but should I be concerned?
Obviously, having so many others hedge fund managers in the stock before I bought my shares kind of bites. Many of those investors are already stilling well in the black with their AIG investment!
So the question is should I stay or should I go?
I’m choosing to STAY, and here are the reasons why…
- I like management, especially the CEO Robert Benmosche! All of the former executives are gone, and the rest of the company’s employees seem to be rock solid! While I don’t totally blame the old guard, it’s nice to know that the new management are seasoned and have excellent experience!
- The stock price has been so downtrodden and the company make such great profit, that it’s just a matter of time before others (maybe even Warren Buffett) realize the value locked in the bad public image of this profitable company.
- Not only has the AIG paid back the government, they also bought back the warrants that the government held too. This means that AIG is totally free of any type of governmental financing or obligations… hooray!
- AIG is associated with the financial sector, so along with the financial sector, AIG should at the minimum float up too with the rest of the group! So even if I’m wrong about the company stock shooting up like a rocket, they should still float up with the entire sector.
- It’s a matter of time before they reinstate their dividend. While I’m not entire sure what their dividend will be, it’s should be something decent. Reinstating a dividend would truly be the icing on the cake!
- While their size and revenue has halved, they are still highly profitable.
- The CEO Robert Benmosche said that he’s planning on growing the company again. He a very dynamic and focused CEO, the epitome of a CEO winner.
For all of these reasons and more, AIG is still a coiled spring (or a submerged bobber as I like to claim), and once the value is realized, I think the stock price will pop up to a place that makes sense.
Well, AIG is up almost 8% from where I first blogged about it in this article: Is AIG The Stock For The Future, but so is the entire stock market, so why do I now claim that AIG is the perfect stock and correction resistant?
Even with AIG stock moving up 8%, it’s still less than 95% of it’s all time high!
But still, that’s not a compelling reason for the stock to be the “perfect” stock! Afterall, both WorldCom and Enron had a time when their stock valuation dropped to 95% of their former highs too and look at them, or rather don’t look at them since they are no more!
So why do I think AIG is the perfect stock? Well obviously low valuation, and the fact that their total capitalization is less than half of their book value! Or it could be the fact that even though the company sold much of their other non-core businesses, their forward PE ratio is projected to be around 9 to 11.
So yeah, the company has some incredible numbers and potential, but what makes the company correction resistant?
Well, while the company will trade in a range, I don’t think the company will dip below 34. While I can’t see the future, I think the company has bottomed since the government is out of the stock, and they are doing some sweet housecleaning with the businesses that they own! If they were to reinstate their dividend, that would just be an additional pull to the upside. While the dividend reinstatement isn’t much in itself but still nice, just the act of providing confidence that they are past the pain should help investors also believe that the company still has a lot of potential as a company and a stock.
Only time will tell, but I’m both hoping and expecting the stock to end the 2013 year with a stock price around $50 to $60.
Thanks for reading, this is for entertainment purposes and I’m not recommending that you do as I have done. This is still a speculative play and has a beta rating of 3.47! A beta rating of 1 is preferred.
Wow, I was checking out AIG’s stock price today, when I noticed an article on Bloomberg called “AIG Gains on Once-In-Generation Buy Recommendation“. Apparently the analysts at Sanford C. Bernstein & Co, agree with what I’ve basically been saying since last year… that AIG is a Great Buy!
I’m pretty excited because basically the same conclusion that the Bernstein analysts came to was a very similar one that I came to back on October 2012 in my previous article titled: Is AIG The Stock For The Future? It’s good to have some of the heavy weight analysts stating that they believe the same as I do!
Instead of presenting the information in a more statistical form as was presented on the Bloomberg article, I’ll explain why I’m excited about the stock in what I consider a few common sense points of interest.
- AIG’s core business is not really traditional banking, instead their core services is insurance.
- Their stock evaluation got pummeled to a point that it’s almost like the company was going out of business totally (and this probably would have been the case if it wasn’t for the US government). This business state is not true today!
- While AIG divested (sold off) a good portion of their businesses, they still make a lot of revenue.
- Their current P/E ratio is 2.57 and a five-year chart I recently looked at showed that their stock performance was down 95%, yeah that’s not common sense but still interesting lol. So if you took the price of the AIG stock 5 years ago and compare it to the price of the stock today, it’s down 95%, but what does that mean? For Example, if we pretend that to stock price was $100 five years ago, the price of the stock today is only $5. If that’s not deep discount, I don’t know what is!
- The company is not really that bad of a company from an insurance company perspective. Most insurance companies do quite well, and this was one of the largest.
- Someday, the dividend will come back, and probable be quite large in contrast to the current stock price.
- After the embarrassing bailout, the company is wiser. President Lincoln failed many times before becoming president, I’m sure he learned something with each defeat. AIG experience a huge defeat and won’t make the same mistake twice.
- Like I said, insurance companies are quite profitable, and with the Mayan “End of the World” misinterpretation off of the table, what is really holding this company down? This is not a Enron, this company has a viable sustainable business model…
There, I said my piece and just to show a visually compelling reason, check out this chart again!
What do you think? To me, I see great opportunity considering AIG is primarily an insurance company. Only time will tell.
Disclosure: I’m long in this stock and have been so since October of 2012.
AIG is finally out from beneath the weight of being owned by the United States Government!
AIG has also simplified their business model to refocus primarily on insurance, thus in the process selling a lot of non-core businesses that they owned.
Even though they are half the size of what they were the stock decreased by over 10 fold from that same high, so using a very simplistic look and feel approach, it should at least double by the end of 2013. But so far, it hasn’t risen much, what gives?
All the pistons should be rolling, but this stock hasn’t started the rise that I expected, was I wonder in my assessment? Or will it just take a while for everybody to believe in this stock again? Now granted that I wrote my piece on AIG for a future investment and not a short-term trade, but I really expected to see a bit more of a rise by now! If you want to read my original article, check out “Is AIG The Stock For The Future“?
I listed my expectation in the above article, with particular emphasis on “My plan is simple, buy a $1,000 worth of shares, and hold it for 5 to 10 years and hope that it increases 500% to 800% (or more) over a 5 to 10 year time frame!”
So I believe that the lights are still green on this stock, but the real catalyst will probably be the moment that they reinstate their dividend again. A second boost could be once they get their credit rating raised.
This stock it beginning to look a bit more like a long shot, but at the same time it has such potential and the fact that they are in the insurance business makes it a huge candidate for a comeback!
What the chart looks like the one above, it seems like the company might be a good speculative play.
Disclosure: Both my son and I are long on this stock.
Last week I mentioned that my son was going to purchase shares in AIG, and we have… and now it’s time for an update, and a closer look at the stock.
If you are interested in why we did this, and our plan around AIG, read the article “Is AIG The Stock For The Future? “.
Now for the AIG Purchase specifics:
I bought shares of the stock in two allotments for at average price of $34.77. Instead of buying just $1,000 worth of stock, I increased the investment amount to $2,100. You might be wondering, why $2,100? Well, for some reason I like my stock share purchases to end in zeroes, so $2,100 is 60 shares worth of the stock. Why do I do this? I have no idea…
So how is AIG doing for me after a week?
Well, I’m up 3.84%!
While that seems like a pretty good number, it’s caused mostly by the rally in the entire stock market that has happened these past few days! I’m not really concerned about the valuation of the stock at this point since we’ll (well my son anyway) will be holding the stock for around 5 to 10 years. I’m just mentioning it here to give the specifics of the purchase, the valuation will rise and fall many times in five to ten years…
Learning About AIG:
AIG has sold a decent amount of it’s non-core businesses that it owned. This has helped them pay back the U.S. government. Obviously, many of the businesses being sold were valuable, and will affect the amount of room that AIG has to grow in the future, but I guess they have to do what they have to do to get the US government paid back! Such liquidation of the company (I’m over-exaggerating here), means that it won’t be hitting it’s historic high for a long, long time (if ever).
Another noteworthy piece of new is that the government is lumping AIG into a group called SIFI, which stands for “Systemically Important Financial Institutions” (SIFI) and thus to be regulated closely by the Federal Reserve. This doesn’t sounds promising, but it is what it is…
So I’m not entirely as optimistic as I was previously about the stock climbing as quickly as I thought, but I do think it will be a great investment for us (yeah, I bought some too) in the long run.
Only time will tell!
Thanks for reading,
Recently, a friend of my son asked “Why is your Dad writing about a Dividend Money Stream for Entertainment“!
Since this is a fair question, I decided to address this question “head on” in the article I’m writing, but make it general enough so that it’s not too specific just to my son’s friend. So now that the reason for this article is established, onto the question:
Why A Dividend Money Stream For Entertainment?
Well, when you are a kid, you don’t need as much money as an adult. Once you are an adult, such a dividend income stream is hard to establish because such investment starts out very small (I know this because I’m currently trying to set up one up for vacations and other things in my life now…) and money is very tight when you are an adult.
Since you don’t need as much money as a kid, you don’t have to sacrifice spending your money like we all do as adults, so why not minimize the hurt in the future by establishing a dividend money steam now in preparation for the future when money is more scarce because of taxes, insurance, shelter, food and other expenses. You see, as a kid, the biggest (and perhaps only) expense you have is entertainment expenses (games, movies, dates, etc).
Think about it…, as a kid you don’t have a house payment, your parent provide for your food, clothes, etc. The only real expense you have is spending for the enjoyment of entertainment, which is great. The problem is that once you spend the money, it’s gone and eventually when you are an adult, that pattern of spending and the money is gone in this ever repeating pattern. I call it the middle class wave, because the money you earn you wave goodbye to as you pay your expenses as an adult.
But if you start a dividend stream for entertainment while you are young, you don’t waste that money because each quarter it pays out a dividend for your entertainment expense, while at the same time keeping the original investment steady or hopefully even mildly increasing. So instead of starting back at zero, you start to build up your money, which in turn (again hopefully) provides a larger and larger dividend stream for entertainment and other expenses as the years go by.
You see, your investment in the dividend stocks are cumulative, so it has the potential of being a near continuous (also call perpetual) income stream for entertainment for your entire life!
Plus, the beauty of establishing a dividend money stream for entertainment is that the investment into the stocks for the stream doesn’t involve any real sacrifice versus when you are older…
And that is why we are creating a dividend money stream for entertainment! Think of a dividend stocks as a cherry tree. While it take a lot of time and work to grow the tree, eventually someday you’ll have cherries for life!
Thanks for reading,
Well, we’ve started to collect our money for dividend stocks for this entertainment website!
So far, we’ve earned $300 dollars to be invested in some dividend stock, then we’ll use the dividend income to fund the activities on this site! The three hundred dollars was from a socialization site submission service that was “officially” started in January. The term of the submissions service will expire in March 2013. Why March? Because as part of the service, January and February of 2012 were free.
Back to our dividend stocks for Entertainment!
In the previous article, I mentioned that the BP dividend stock might be a good candidate to look into, and it has rose about 5% since I mentioned it a few weeks ago. It’s still a decent stock, but we decided to go more aggressive, since we only expect to have a little to invest. After all, a 5% dividend is only $15 for the entire year… That said, we might pick it up if we earn more money to invest…
We’ve decided that we will make our first dividend stock purchase after we have saved up at least $530! Why the $30, you might wonder? Because of the transaction costs to make the stock purchase and corresponding future sell of that stock.
And we’re going to try and find a dividend stock that pays out at least 10% in dividends. We’re going to stay away from limited partnership stocks though because the tax computation can be very complex. Instead we are going to focus on REITs since they payout at least 90% of it’s earnings in dividend.
We got a long way to go, with just being half way to our first $500, but it’s a start!