American International Group Inc (NYSE:AIG) Likely to Surpass 2016 Expectations

May 16, 2016

Senior Analyst Amit Kumar of Macquarie Group Limited says American International Group Inc (NYSE:AIG) is his top stock pick in large-cap commercial insurance, as he expects the company to surpass its lowered 2016 expectations.

There are a number of factors aiding AIG. Number one is, the stock has meaningfully underperformed over 2016 compared to the S&P and its peer group. The valuation is extremely cheap at these levels.

Number two…most people are skeptical as to what the company will report when it reports earnings and what the outlook is going forward. The issue is that the bar is very low, which they have to cross at this juncture. My sense is that they will easily surpass those lowered expectations over 2016.

Number three is that they have taken reserving actions in Q4 2015. Recently, AIG held a meeting at their offices with all of the covering analysts, and the message was that the actions are leading toward rightsizing the company. They talked about the reserve charge, which they had taken in 2015, and said it should reduce the volatility of results going forward. That has been one major overhang on the stock.

Looking at the combination of the low bar, valuation, decreased volatility in results and capital management, you’ll see a lot of people gravitate toward one of the cheapest names in the large-cap commercial space.