Mega investment funds are finally jumping head first into American International Group (AIG). The global insurer still carries the notoriety and financial damage from the financial crisis of 2008, but their low stock valuation offers an interesting opportunity for investors. Up until this point, AIG has suffered from a lack of notable shareholders outside of Fairholme Funds.
This was probably the result of insufficient margin of safety, the fear of the looming government share sales and a general reluctance to own such a despised stock. But, the sentiment may have changed. Large well known investment funds finally jumped into the stock in the last quarter, signaling a possible turning point for the company and the stock.
Position: 2,531,800 shares and 500,000 calls
AIG was a brand new position.The company operates a concentrated portfolio with stocks from various sectors.
Position: 103,164,517 shares
The company sharply increased their position during the most recent quarter. As of March 30, 2011, the fund had 44,198,015 shares and 23,722,162 warrants. They did not list ownership of warrants in their most recent quarter. It is unclear if they sold the warrants, exercised the warrants or no longer needed to report them, but it is highly unlikely that they would exercise the warrants because they would have given up substantial time value from the optionality of the warrants.
Position: 9,754,453 shares
This was a brand new position for the Larry Robbins managed hedge fund. As of June 30, 2011, the fund reported $7.4 billion of US listed equity positions. The company is value oriented and they run a relatively concentrated portfolio. Some of their largest investments include: AIG, Life Technologies (LIFE), McKesson (MCK) and Xerox (XRX).
Position: 1,725,000 shares
The New York based hedge fund established a relatively modest position in the global insurer. But the position is well worth noting because of the fund's stature and because of their concentrated portfolio. Their holdings come from a broad array of sectors and as such, but they seem underweight finance and insurance companies, making their purchase of AIG that much more interesting. According to the last Form 13F, the company had $2.94 billion invested. In addition to AIG, the company also established large new positions in Mosaic Co (MOS) and Sirius XM Radio (SIRI).
Of course major hedge fund ownership of a stock does not guarantee strong future stock performance, but we think this shift in sentiment coupled with the fundamental valuation provides a compelling bullish dimension to the AIG investment thesis.
The stock trades at a forward P/E of 7.45 and a price/book of 0.53. During the coming quarters, the management still has a burden to prove to the markets that they are properly reserving for losses, but the company's global reach and potential is still substantial.