American International Group (AIG)

They will benefit from higher interest rates. They ran into difficulty during the financial crisis and had to restructure. They are trying to grow their return on equity. She keeps her insurance exposure in Canada.

They reported this week and the stock went down 10%. It went down because they had to take some provisions. They are the big beneficiaries of rising interest rates. This is his favourite of the group.

Interest rates are going to up and financial repression is over. His model price is $76.66, indicating an 18% upside. (Analysts’ target: $72.29).

Basically a financial services company. Historically the US financial service sector starts to get positive on a seasonal basis in the 3^rd week in January. It usually goes higher until around the end of April. Currently, the stock has already gone above a key resistance level. The trend is on the upside already. You have all the requirements for an interesting seasonal trade right through until around the beginning of May.

It has come out of the blue. His model price is $76.31, or a 16% upside. A lot of insurance models don’t work with negative interest rates. Financial repression is being done away with. (Analysts’ Target: $70.19%).

Insurers benefit particularly when interest rates go up. Companies like this get billions of dollars in premiums, and they have to do something with those premiums until they have to make payouts. What they’ve typically done is buy bonds. If you are buying bonds at 2%, you are not making a lot of money. If those bonds go up to 3%, you are making 50% more. You can buy this one right now at 80% of BV. He also thinks the dividend is going to rise very sharply. Dividend yield of 1.94%. (Analysts’ price target is $69.18.)

You are getting the big insurance companies emerging. The market is communicating, through his model price, that it likes the balance sheet. This is the highest valuation it has been in 8 years. Dividend yield of 2%. (Analysts’ price target is $66.24.)

(Market Call Minute.)

An insurance company, and you need rising interest rates for insurance companies to do very well. The chart is pretty much sideways. Until we see rates actually start moving higher, and the Fed actually makes some action rather than talking about rising interest rates, the stock will probably move sideways for quite some time. In the US, he would look at the actual bank companies, rather than the insurers.

If you believe that rates will go up, this is a good place to invest. Insurance companies make most of their money on their bond portfolios. This company just reported and had a very strong report by basically increasing the quality of earnings, and recognizing the fact that rates are not rising. Have also cut costs by 11% year-over-year. They’ve been in the program of exiting non-core assets quite effectively. Given their very attractive pricing against their BV, it is a good place to invest.

A good, self-help story. It is under pressure like all financials. Pretty cheap. Feels it has cleaned up its Book quite a bit. A very good insurance company. You may have to wait 6 months or more.

(A Top Pick May 12/15. Down 6.84%.) A real value stock trading at less than 1X BV. Has tremendous earnings potential. Sees potential on this simply on a valuation basis. Still likes.

MetLife (MET-N) or AIG (AIG-N)? He is kind of a fan on Carl Icahn who is telling this company to break up. His model price is $60.73, a negative 3%, so between them MetLife looks better. The issue is Carl stirring the pot, but he doesn’t think the regulators are going to bite in terms of breaking this company up. Owning financials in the US is a frustrating experience.

(A Top Pick Nov 24/14. Up 16.58%.) This is slowly moving forward. There is little bit of activist play these days. Carl Icahn has become involved in and wants them to break up the company. Thinks they realized that they had to streamline the business and they have been doing so. Have been selling non-core assets and getting back to their roots as a property and casualty insurer.

Has done well over the last short period. Activist Carl Icahn came forward last week and basically said this is a company that was getting in its own way and should split up into a number of different divisions. The company responded that this would be a more costly exercise. Thinks those discussions will go on for some time. Last quarter was not stellar on a couple of levels. The P&C business wasn’t that good, so revenues were a little light. Earnings were quite light because they had the mark down on some of their investments.