Is AIG’s Stock the Ultimate Comeback Story?

With shares of American International Group (NYSE:AIG) trading at around $35.09, is AIG an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

AIG-001

AIG almost took the entire economy down with it during the financial crisis. Whether you agree with the bailouts or not, they gave AIG new life. AIG is still nowhere near its all-time highs, but it’s nowhere near its all-time lows, either. However, there is still a lot of room for the stock to run or fall. Based on recent momentum, the situation is looking like a positive one. The stock is up almost 40 percent over the past year. When you look at the company’s fundamentals, you might be surprised with what you find. Margins are strong, the balance sheet is improving, and cash flow is decent. Analysts also now heavily favor the Buy side. AIG has made a concerted effort to get healthy over the past couple of years, and that effort is now paying off. If you’re concerned that the stock has climbed too high, keep in mind that the Trailing P/E is just 2.42. The Forward P/E is 9.94.

Let’s take a look at some more important numbers for AIG.

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E = Equity to Debt Ratio Is Normal

The debt-to-equity ratio AIG is normal. It’s higher than the debt-to-equity ratios for The Travelers Companies (NYSE:TRV) and The Chubb Corporation (NYSE:CB), but it’s nothing to worry about, and it’s heading in the right direction. The balance sheet is in decent condition. Once again, it’s more about the direction, which is good.

Debt-To-Equity

Cash

Long-Term Debt

AIG

0.72

$49.10 Billion

$73.75 Billion

TRV

0.25

$220.00 Million

$6.35 Billion

CB

0.22

$53.00 Million

$3.78 Billion

 

T = Technicals on the Stock Chart Are Strong

AIG has been on a tear over the past year. It has outperformed its competitors over that timeframe.

1 Month

Year-To-Date

1 Year

3 Year

AIG

-1.24%

-0.59%

36.80%

25.50%

TRV

3.37%

6.25%

27.44%

69.69%

CB

3.92%

4.93%

13.88%

71.14%

 

At $35.09, AIG is currently trading above all its averages.    

50-Day SMA

34.02

100-Day SMA

34.26

200-Day SMA

32.91

 

E = Earnings Have Shown Improvement

Earnings and revenue haven’t been consistent on an annual basis, but there has clearly been a significant improvement since the financial crisis.

2007

2008

2009

2010

2011

Revenue ($)in billions

103.63

-6.84

75.45

77.53

64.24

Diluted EPS ($)

47.98

-756.85

-90.48

11.60

9.44

 

When we look at the last quarter on a YoY basis, we see an increase in revenue and earnings.

9/2011

12/2011

3/2012

6/2012

9/2012

Revenue ($)in billions

12.72

17.40

18.44

17.12

17.65

Diluted EPS ($)

-2.10

10.23

1.71

1.33

1.13

 

T = Trends Support the Industry

The insurance industry might not be hot right now, but if you look at the stock performances above, it has been a great place to be. If the insurance industry picks up, then there is no telling what type of gains we can see. Despite AIG’s disastrous fall during the financial crisis, insurance companies as a whole tend to hold up well during market drops.

Conclusion

With great valuation, strong margins, an improving balance sheet, and the spinoff of non-core operations, AIG is an OUTPERFORM.

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