Bruce Berkowitz, manager of the over $8 billion Fairholme Capital Management fund, has bet half of the portfolio on AIG, saying it’s undervalued. Is he right?
American International Group (AIG) is an undervalued stock according to one legendary fund manager.
Bruce Berkowitz manages the over $8 billion Fairholme Capital Management fund. Half of its portfolio is in one stock alone – AIG.
Appearing on CNBC’s Squawk on The Street this morning, Berkowitz gives his reasons for being so dedicated to the stock:
“You know, investing’s all about comparing what you give versus what you get. And, when you look at today’s stock price with AIG, it’s still selling significantly below a liquidation value. So, at some point, the stock market price of AIG will meet the book value of AIG which I take as a proxy for the liquidation value.”
Book value refers to the balance sheet value of the company’s equity (assets minus liabilities), which can often be quite different than the market’s value. Generally, financial institutions such as AIG are measured by book value because much of their assets are liquid assets.
In the case of AIG, the net book value is nearly $97.5 billion, or about $66.02 per share. However, the market values it at $71 billion given its current share price of $48.08.
While it’s possible the company can lose book value to match the market value, Berkowitz hopes the market value will move up to match the book value. In the case of AIG, that would be an appreciation of 37.3%.
As a point of reference, AIG shares have risen about 38% in the last twelve months.
So, is Berkowitz right about AIG? Looking at the fundamentals of the company is CNBC contributor Gina Sanchez, founder of Chantico Global. On the charts is Talking Numbers contributor Richard Ross, Global Technical Strategist at Auerbach Grayson.
Watch the video above to see Sanchez and Ross analyze AIG to help you decide if there’s merit to Berkowitz’s biggest investment.