Possible issues surrounding AIG are continued exposure to the subprime market, notably in the residential and commercial mortgage-backed area. AIG managed to settle its bailout with the Treasury in early December, and despite whispers that the company was considering joining former CEO Maurice Greenberg in a lawsuit against the U.S. government, AIG indicated on Wednesday that it would not be taking part.
Also putting pressure on the insurer in the interim will be losses from Hurricane Sandy. Losses are projected to be upwards of $2 billion (pre-tax) from the so-called “superstorm.” The company is expected to fund roughly 50% of the claims with capital from its U.S. property and casualty operations. Interestingly, AIG did see billionaire Ken Griffin up his stake by 100% in 3Q 2012 (check out Ken Griffin’s newest picks), and the stock trades at mere PEG of 0.14, so there is some obvious value here.
Apple, meanwhile, is seeing continued competition in its tablet business as a number of other tech companies flood the market with their own devices. NPD estimates that these new low-cost alternatives will drive Apple’s market share from 72% (2011 total) to 51% in 2017. Another one of Apple’s struggling segments appears to be its music player business, in part due to the cannibalistic impacts that the iPhone and iPad have had.
Other competition in the music area is coming from Google, Amazon, Spotify and Pandora, which are infringing on Apple’s iTunes. There also appears to be a decline in sales growth: from 45% in FY2012 to an expected 25% in FY2013, and 15% in FY2014. Although we have reasons for concern, Apple still only trades at a 0.5 PEG and is one of the top ten tech stocks loved by hedge funds (see all 10 here).
eBay’s payments segment, PayPal, is expected to be one of the key long-term growth drivers for the company. Now, one obvious point of concern is increasing competition in the mobile and online payment space, including from the likes of Square and Google Wallet. Gross margins have also been in decline from 75% to 70% over the last four years (through full-year 2011) as marketplace margins drag the company down. This has been in large part thanks to a large transition from auction transactions to fixed-price transactions.
Tiffany’s 3Q 2012 results came in with earnings per share at $0.49, well below EPS one year earlier, which totaled $0.70 a share. A hesitant economic backdrop does not help with Tiffany’s outlook either; management cut full year 2012 EPS estimates from $3.55-$3.70 to $3.20-$3.40.
The affluent customer base Tiffany tailors to is feeling the pressures of a tight credit market, in which low credit availability and high household debt levels are the main sources of pain. Compared to other high-end accessory company Coach, Tiffany trades at 20x earnings; Coach is at only 16x earnings. Due to a weak outlook and a relatively fair valuation, Cohen might consider dumping some Tiffany shares. Billionaire George Soros did, however, take a new position in Tiffany during 3Q 2012 (check out George Soros’ newest picks).
While nothing is certain, possible redemptions by SAC Capital investors may force the fund to explore selling off some of its stocks. Sirius was up 50% in 2012 and might present a good opportunity to take profits. Competition is heating up for both Apple and eBay, while AIG still has execution risks related to its turnaround. Tiffany’s fairly average valuation does not stand out to us as a stellar pick moving forward either.
Read more about Steven Cohen’s Stock Picks:
Exxon Mobile & Verizon: Among Cohen’s Defensive Picks
Steven Cohen’s High Upside Potential Stock Picks
Billionaire Cohen’s Retail Stock Picks
Disclosure: I have no positions in any of the stocks mentioned above.
