One year ago today, the federal government began bailing
out
AIG (NYSE: AIG) in the wake of the Lehman
Brothers bankruptcy. Although the endgame for the insurer
isn't yet clear, there is no shortage of investors willing to
bet on the outcome, if the stocks' recent rally is anything
to go by. Is there an opportunity here for ordinary
investors?
First, let's recap how the government became AIG's
majority shareholder:
Timeline
Nationalization greeted with a huge stock
rally!
Who would have foreseen it? Since March 9, the day on
which the market hit its
crisis low, AIG has been the 6th-best performing stock in
the S&P 500, with a stunning 487% return. (Incidentally,
two other financials that received massive government aid are
also high up in this ranking:
Bank of America (NYSE: BAC) is 14th (+353%)
and
Citigroup (NYSE: C) is 20th (+330%)).
AIG is part of the "
junk rally" I wrote about last month. It goes without
saying that those stocks that have performed best during this
rally are those that were hardest hit when fear reached its
peak. However, does this justify a rebound of this magnitude?
My inclination is to answer "No," or at the very least, "It's
highly unlikely."
Is there any residual value at AIG?
That's the $5.5 billion question. (The sum represents
AIG's current market capitalization.) Let's take a look at
how AIG stacks up against its competitors according to
several valuation measures:
Price / Book Value
Price / Tangible Book Value
Price / Earnings
(Current Fiscal Year +1)
Berkshire Hathaway (NYSE: BRK-B)
1.34
1.91
18.3
Met Life (NYSE: MET)
1.17
1.43
9.78
Travelers (NYSE: TRV)
1.02
1.31
9.15
Prudential (NYSE: PRU)
1.25
7.79
9.25 Continued... |