American International Group (AIG)

Was the poster boy of excess back in ’08. Pure property and casualty company now. Have some pricing power and we are starting to see the results. Starting to build dividend back up. The Cloud form ’08 is an opportunity for investors.

Has been a great turnaround story. Significantly de-levered the balance sheet. Trades at a discount. He took profits. But now he would recommend holding if you own it.

A very large US insurer. Doesn’t own this as there are so many line items associated with US insurers that it gives him a little bit of apprehension and keeps him sticking close to home with Canadian financials. However, this has shown dramatic improvement. Operational EPS was $4.57 for 2013, which was the best ever since the financial crisis. Also, the multiple has expanded quite substantially. It was trading at 0.5X Book at the beginning of 2013 and is now 0.7X. The issue now is, can they keep that momentum. Growth rate of property/casualty underwriting is slowing and looking at the most recent amount of share buybacks that they have executed, it is not as much as the Street was expecting. If you own, he would look to trim off a little bit in the low to mid $50’s.

They are now paying a dividend. Have a long-term commitment to return $25-$30 billion of capital to shareholders. Have a pending sale for their aircraft leasing division. Still trading at about 65% of BV. Lots of upside opportunity.

(Top Pick Nov 5/13, Up 1.35%) It will be a longer term hold. It’s just starting to break out right now and should be a double in 3-5 years.

Prior to the meltdown, it went under the Greenberg/Rienhead (?) 15 year accumulative total return growth for about 30 years and was a very well run company. Got into trouble by effectively ensuring everything. When derivative plays effectively got caught, they ultimately ended up having to dig a ton of money from the government and the government still owns a ton. Catalyst for this story is that the balance sheet is probably reasonable now, insurance markets are going to move higher and will be a better equity performance. Going to be a very long story. There are better opportunities.

Has reinvented itself. New CEO has done a very good job. They are now really a Property & Casualty company with a well farm in the old Sun America. That business is doing pretty well. There is some pricing power in the P&C world and they are making good money. Have a deferred tax asset that, with success, they will be able to use to minimize taxation.

This one is #4 in his top 10 in terms of his US mutual fund. All of these insurance companies over the last month, Canadian as well as US, have had a nice run. Disappointed in earnings they released, but still just came nicely down to one of his structural lines. Looks good.

When the government exited their position, it allowed the company to gain a little bit of control over their own destiny. They are a much purer property/casualty insurer now. Have a wealth management division in South America. Doing well and making good money. Just started a dividend and expects it will grow fairly rapidly and to a pretty nice yield over time.

The broad-based insurance companies in general look pretty good. This one has a wonderful franchise. Have been working through their issues in the last few years. This pullback is probably a good entry point.

It can be a volatile stock. Maybe short a basket of other insurance companies as a hedge.

This has had a big, big, long trend line, and is just beginning to break out right now. His view is that it will break the old long-term consolidation that happened after the 2008 big crash and will be a good mover. He is looking at this as a 3 to 5 year pick.

Most of the overhangs seemed to have been sorted out with paying back the US government and it looks like the company is going back to its roots as a property/casualty insurer, as well as some part wealth management. The issue here is the amount of volatility the name. Trading at a much better valuation on a Price to Book basis, relative to other insurers in this space. He prefers going domestic in the financial space and less levered to being so interest sensitive.

(Top Pick Oct 24/12, Up 49%) They were re-inventing themselves. An over leveraged nightmare. Went back to wealth and casualty roots. Inexpensive company back then. Sooner than he thought they bought back the US government shares and started a dividend. Still believes it offers good value.

Back to its roots as a property/casualty insurer and wealth management. Paid back the US government. Have now instituted a dividend which will start to increase fairly rapidly as cash flow improves. Have the Deferred Tax asset which he feels is worth somewhere around $9-$10 a share and really isn’t built into the stock. Trading at only 10 or 11 times earnings.