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Insurance, Snow, REITs and Criteo — Earnings Check-in

The Friday File comes early this week...

By Travis Johnson, Stock Gumshoe, August 3, 2016

I won’t be able to post our regularly-scheduled Friday File for you this week, since I’ll be preparing for my ride this weekend (thanks again to the many of you who have sponsored me!), and Stock Gumshoe will be very quiet next week because I’ll be on vacation with my family (and recuperating, I imagine), so I’m trying to get some quick thoughts out during this week to make up for it… particularly as earnings releases of note catch my attention.

AIG (AIG) reported what looks like an excellent quarter yesterday, which is good news for AIG shareholders and warrant holders (I hold the warrants on this one) — book value per share grew by 6%, but, more importantly, their “turnaround” moves to dramatically improve efficiency and continue clearing out their “legacy” assets (that’s seems to be the generally accepted polite term for “the crap previous management teams invested in that got us in trouble”), and their return on equity and income were both better than anticipated. It’s still not the best insurance company around, but it’s at least becoming an average one with the potential to be better than that, and it’s still trading at a meaningful discount to book value — book value per share is $83.08, the shares opened this morning, post earnings, at around $57, which is roughly 70% of book value.

I went into those AIG warrants in a bit more detail last month here if you want some background — the key, really, is that returns from the warrants should be somewhere between half again as good and twice as good as returns from the common stock IF AIG goes up by at least 30-60% over the next five years (which it could easily do if it just had stable and mediocre performance and traded up to near book value), and I have a hard time resisting long-dated warrants that price in too much pessimism. That may just be my rose colored glasses at work, we’ll see. In the short term, the leverage is working as expected — AIG up about 6%, AIG-WT up about 10% today, I think AIG is a decent bet here if you want some exposure to the financial sector, with the general backdrop being that rising rates (if they ever come) should benefit insurance companies, but I’d still choose the warrants because I think low ...

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