American International Group, Inc. AIG has been in favor with investors, apparent from its bullish run on the bourses. The stock hit a new 52-week high of $58.66 on Sep 19, before closing the session a tad lower at $57.89. The company is benefiting from numerous growth strategies undertaken over the past two years in order to regain its lost profitability.
Notably, shares of the company have gained 5.9% in a year’s time compared with the industry’s decline of 4.2%.
Will the Run Continue?
Usually, stocks that reach a 52-week high are perceived as appropriate investment picks. However, investors often wonder if the stock is overpriced considering the high price level. While the apprehensions are not absolutely baseless, all stocks reaching 52-week high are not necessarily overpriced. A brief glance at some valuation metrics seems to indicate that this Zacks Rank #3 (Hold) company has enough room to scale higher.
Further, a Growth Score of B also substantiates its growth potential.
AIG’s price-to-book (P/B) ratio of 0.8 compared with that of the industry’s 1.6 indicates that the stock has enough upside potential. The stock also looks attractive with respect to a forward price-to-sales (P/S) multiple of 1x versus the industry’s 1.3x.
Therefore, an attractive valuation and sound fundamentals make this stock worthy to be retained for now.
A Brief Introspection
Since the beginning of 2018, American International has been focusing on addressing several critical areas, such as refining its approach to underwriting, reducing risk profile, overhauling reinsurance strategy to reduce volatility, making General Insurance business profitable and remediating challenged legacy businesses, and position itself strategically in the global insurance marketplace.
The company has achieved quite a bit in its largest segment, General Insurance (contributing nearly 67% of total revenues in 2018), by posting an underwriting profit and a favorable combined ratio in the first half of 2019. This underwriting profit represents a significant milestone for AIG, and reflects the tremendous work taken up by management to improve underwriting fundamentals.
The company’s approach to reinsurance, which has dramatically reduced risk and volatility, onboard acquisitions and continuous expense discipline across General Insurance, is expected to drive the segment’s results. Management remains confident that the segment will continue to improve its financial performance and deliver underwriting profit for full-year 2019.
Along with growing its top line, the company has tightened its grip on expenses, which has aided its margins. It has also witnessed a decline in expense ratio, despite making investments in talent, business process and infrastructure to support its long-term profitable growth objectives.
AIG’s continuous focus on strengthening its underwriting fundamentals, the changing mix of business and the focus on inorganic growth should pay off. Recently, the company completed the buyout of Validus and Glatfelter. Validus adds an attractive bundle of businesses, including a reinsurance platform (Validus Re), an insurance-linked securities asset manager (AlphaCat), a Lloyd’s syndicate (Talbot), a specialty US small commercial excess and surplus underwriting team (Western World), and Crop Risk services, which focuses on the North American crop insurance market.
Some better-ranked stocks are James River Group Holdings, Ltd. JRVR , Assurant Inc. AIZ and Radian Group, Inc. RDN. While James River Group sports a Zacks Rank #1 (Strong Buy), Assurant and Radian Group carry a Zacks Rank #2 (Buy).
You can see the complete list of today’s Zacks #1 Rank stocks here.
James River beat estimates in three of the four reported quarters with an average positive surprise of 2.62%. Assurant and Radian beat estimates in each of the four reported quarters with an average positive surprise of 21.75% and 10.10%, respectively.
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