Follow George Soros and David Tepper Into This Insurer

Anh is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

It is interesting to see many famous hedge fund managers share the same long ideas. That is when investors should take notice. It might be a sole long idea, or just a hedge of a short. We do not know. Nevertheless, when many of them buy into one stock, it might indicate their bullish attitude toward that particular investment, especially when it accounts for a big chunk of their portfolios.

Recently, George Soros, one of the most successful hedge fund managers reported that he had bought more than 15.2 million shares of American International Group (NYSE: AIG) for a total value of nearly $500 million, at the price range of $30.17 - $35.00. AIG is now his largest holding, accounting for around 5.4% of his total US long portfolio. Following Soros, David Tepper, who is managing Appaloosa Management LP, bought 8.25 million shares to make it his fourth largest holding. AIG accounts for 6.7% of his portfolio. Other two hedge fund managers including Daniel Loeb and Leon Cooperman added more to their existing AIG position, owning 23.5 million and 8 million shares, respectively.

AIG is considered to be the global leading insurance corporation, operating in around 130 countries in various insurance fields such as life insurance, retirement services, and property-casualty. The majority of its revenue sources in 2011 came from commercial insurance (42%) and consumer insurance (22%). Both of these segments were run via Chartis. AIG was one of the corporations that received a $182 billion commitment from the government via the US Department of Treasury and the Federal Reserve. After the funding,  the Department of Treasury ended up owning 92% of AIG in Jan. 2011. Four months later, the department’s AIG ownership reduced to 77% due to the common stock offering by the department. In September this year, the department had another public offering of $18 billion. Now, the government funding of $182 billion has been repaid in full, and the government realized a profit of $15.9 billion to date.

In the third quarter, it reported a significant growth in revenue of $17.65 billion, from $12.7 billion in the same quarter last year. The growth was mainly due to the huge jump in its net investment income, from $658 million to $4.65 billion. With the increase in net income and decrease in the number of shares outstanding, its EPS improved from negative $1.99 in Q3 2011 to a positive $1.13. As of September, its total shareholders’ equity was $102.4 billion. The total policyholder contract deposits were nearly $127.5 billion. The majority of its $410 billion investment portfolio were in bonds, nearly $270 million. AIG is trading at $31.80 per share, with the total market capitalization of $46.95 billion. The market seems to value AIG cheaply, at 8.3x forward earnings and 0.5x P/B. 

For the last year, investors should be happy with a 45% return that AIG brought them. Actually AIG shot up to $37.21 in the middle of October, then slid down to the current price of $31.80. AIG’s peers are located in different places including AXA (NASDAQOTH: AXAHY) in France and Allianz SE (NASDAQOTH: AZSEY) in Germany. AXA has a similar valuation with AIG’s with 6.6x forward P/E and 0.6x P/B. However, it is better in terms of dividend as it is paying investors a 5.2% dividend yield. AXA is trading at $14.73 per share with the total market capitalization of nearly $34.5 billion. Allianz is a little more expensive with 9.9x forward earnings and 0.9x P/B. The dividend yield is 3.6%. Allianz and AIG are competing quite vigorously for a $50 billion auto insurance market in the biggest population in the world, China. Allianz made its move by selling voluntary coverage for 5 years, whereas AIG came in via 9.9% investment in the People’s Insurance Company of China, one of the largest Chinese insurers. Allianz is trading at $11.84 per share, with the total market capitalization of $53.58 billion.

My Foolish Take

With the strong footprint in the insurance markets globally, AIG will come back stronger. However, it will take some time. Along with the bullish attitude from other famous hedge fund managers who bought large stakes in AIG, investors might consider AIG to be a part of their long-term investment portfolios.  


hoangquocanh has no positions in the stocks mentioned above. The Motley Fool owns shares of American International Group and has the following options: long JAN 2014 $25.00 calls on American International Group. Motley Fool newsletter services recommend American International Group. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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