Will AIG Continue to Move Higher?

With shares of American International Group (NYSE:AIG) trading around $48, 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:

T = Trends for a Stock’s Movement

AIG is an international insurance company, serving customers in a wide range of countries around the world. AIG companies serve commercial, institutional, and individual customers through property casualty networks of any insurer. AIG’s companies are also providers of life insurance and retirement services. AIG’s segments include Chartis, SunAmerica Financial Group, Aircraft Leasing, and other operations. The company suffered greatly during the 2008 financial crisis, but is now on the road to recovery. Insurance companies will continue to grow as new and existing risks continue to concern businesses and consumers worldwide.

AIG reported third-quarter earnings that beat expectations with profit rising 17 percent to $2.17 billion and adjusted earnings of 96 cents a share. But, shares were still down in pre-market trading Friday morning, as AIG’s property-casualty business paid more in claims than it made, causing revenue for the unit to fall 3.7 percent. AIG also said that the sale of its ILFC aircraft-leasing unit had not yet closed and may be terminated, according to Reuters.

T = Technicals on the Stock Chart are Strong

AIG has seen its stock rise over the last couple of years. The stock is currently trading at highs for the year. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, AIG is trading between its rising key averages, which signals neutral price action in the near-term.

AIG

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of AIG options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

AIG Options

23.24%

0%

0%

What does this mean? This means that investors or traders are buying a small amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

November Options

Average

Average

December Options

Average

Average

As of today, there is an average demand from call and put buyers or sellers, all neutral to bullish over the next two months. To summarize, investors are buying a small amount of call and put option contracts and are leaning neutral over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Mixed Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on AIG’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for AIG look like and more importantly, how did the markets like these numbers?

2013 Q3

2013 Q2

2013 Q1

2012 Q4

Earnings Growth (Y-O-Y)

29.20%

16.67%

-12.87%

-123.75%

Revenue Growth (Y-O-Y)

-11.34%

6.70%

-9.20%

-4.09%

Earnings Reaction

-6.06%*

2.68%

5.67%

3.13%

AIG has seen mixed earnings and decreasing revenue figures over the last four quarters. From these numbers, the markets have had mixed feelings AIG’s recent earnings announcements.

* As of this writing

P = Excellent Relative Performance Versus Peers and Sector

How has AIG stock done relative to its peers, Berkshire Hathaway (NYSE:BRKB), American Financial Group (NYSE:AFG), OneBeacon Insurance Group (NYSE:OB), and the sector?

AIG

Berkshire Hathaway

American Financial Group

OneBeacon Insurance Group

Sector

Year-to-Date Return

37.25%

28.48%

41.93%

15.11%

31.69%

AIG has been a relative performance leader, year-to-date.

Conclusion

AIG is an international insurance company that is beginning to show signs of positive growth. The company reported earnings that beat expectations. The stock has been rising over the last couple of years and is currently at highs for the year. Over the last four quarters, earnings have been mixed while revenue’s have been decreasing, leaving investors with mixed feelings about the company. Relative to its peers and sector, AIG has been a year-to-date performance leader. Look for AIG to OUTPERFORM.

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