I am buying scandal-tainted AIG for my retirement account. The breadth of accounting irregularities at AIG has been widely reported. The Dow component stock has fallen from a high of $72 (reached after the resolution of a previous set of problems) to around $52. AIG has also delayed filing its 2004 annual report pending a review of its accounting practises. It is possible that the accounting review being conducted by the company could unearth more problems.
However, I think that investors have overreacted to the problems facing AIG. The new management appears to be cooperating fully with the authorities. More importantly, AIG has promised to improve transparency and corporate governance. I’m betting that once the dust settles investors would see AIG’s strengths: its strong financial position, significant global presence especially in China and Japan and impressive earnings growth. At $52, the stock is trading at less than 10 times its estimated 2005 earnings of $5.25. In the short-term, the stock does have a lot of headline risk associated with it.
ValueLine’s free stock report on AIG can be found here.
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