With shares of American International Group (NYSE:AIG) trading around $44, 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 more than 130 countries. AIG companies serve commercial, institutional, and individual customers through property-casualty networks of any insurer. In addition, AIG companies are 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 rise to demand as new and exisiting risks continue to be of concern for businesses and consumers worldwide.
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T = Technicals on the Stock Chart are Strong
AIG stock saw significant selling during the 2008 Financial Crisis and has yet to fully recover. In fact, the stock was on the verge of bankruptcy. The stock has been trending higher over the last couple of years and is now trading at decisive price levels. 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 above its rising key averages which signal neutral to bullish price action in the near-term.
(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 | 25.53% | 6% | 5% |
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 | |
| June Options | Flat | Average |
| July Options | Flat | Average |
As of today, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put 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 to bullish 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 Q1 | 2012 Q4 | 2012 Q3 | 2012 Q2 | |
| Earnings Growth (Y-O-Y) | -12.87% | -123.75% | -153.81% | 33% |
| Revenue Growth (Y-O-Y) | -9.20% | -4.09% | 38.76% | 2.64% |
| Earnings Reaction | 5.67% | 3.13% | -7.15% | 1.62% |
AIG has seen mixed earnings and revenue figures over most the last four quarters. From these figures, the markets have been optimistic about most of AIG’s recent earnings announcements.
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 sector?
| AIG | Berkshire Hathaway | American Financial Group | OneBeacon Insurance Group | Sector | |
| Year-to-Date Return | 25.44% | 25.02% | 23.68% | -1.65% | 22.06% |
AIG has been a relative performance leader, year-to-date.
Conclusion
AIG provides valuable insurance products that ease concerns for consumers and companies participating in various industries worldwide. The stock was severely damaged during the 2008 Financial Crisis but is now beginning to recover. Earnings and revenue figures have been improving which has kept investors happy. Relative to its peers and sector, AIG has been a year-to-date performance leader. Look for AIG to OUTPERFORM.
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