This is part 2 of HypeZero’s 10 best investment ideas from the best hedge fund managers. These 10 ideas are generated by the HypeZero proprietary algorithm. The algorithm has been back tested since 2004 and has returned over 170% cumulatively. Here is the third investment idea:
American International Group, Inc. (AIG: Nasdaq) ($33.30, September 10, 2012)
After what happened to the AIG during the financial crisis, a lot of investors are afraid to touch AIG. However, that can’t be said for Bruce Berkowitz of Fairholme Capital Management. Over 40% of Fairholme’s portfolio consists of AIG and AIG warrants.
Bruce Berkowitz and Whitney Tilson (T2 Partners) believe that AIG trades at a significant discount to its intrinsic value. They believe that investors are undervaluing the fact that:
- Its main core insurance businesses (Chartis and SunAmerica) are global, well managed leaders.
- Their balance sheet is no longer risky like in the past.
- Its stock is trading at almost half its tangible book value. Both believe that it should be worth at least 1x the book value.
- As the government exits out of its ownership of AIG and as AIG sells its non core assets and buys back shares, the true value will shine through.
- Holds over a $5 billion stake in AIA Group. It has sold over $8 billion worth of AIA shares already this year.
- International Lease Finance Corporation (ILFC), which it was trying to IPO for $6 to $8 billion.
United Guaranty Corporation (UGC), a mortgage guaranty business, which is valued around $1 to $2 billion.
Disclosure: I do not own shares of AIG, but I may initiate a position within the next week.