American International Group Inc (AIG): Still Room for This Turnaround to Run

The company’s primary business is the sale of private passenger automobile and homeowners insurance, with a market share of 11% in each of these lines. Of the 2012 premiums written, standard automobile policies accounted for 64%, non-standard automobile policies 3%, homeowners coverage 24%, and other was 9%.

One of the big drawbacks for The Allstate Corporation (NYSE:ALL)’s portfolio includes less liquid assets, where at the end of 2012 mortgage loans and limited-partnership interests made up over 12% of its invested assets.

Hedgie trade

If we use hedge fund interest as a gauge for how the market feels about our insurers, there’s no doubt that AIG is the huge favorite to win out over the near term. AIG had over 145 hedge funds long the stock going into the second quarter. This includes Bruce Berkowtiz’s Fairholme Funds, which owns the largest stake among major hedge funds, with a $3.3 billion position

Meanwhile, both Chubb and Allstate only had 32 hedge funds long the stock at the end of 1Q. The hedge fund interest represents a 3% decrease from the previous quarter for Chubb, but a 14% increase for Allstate. Also worth noting is that Allstate calls billionaire Ken Griffin’s Citadel Investment Group its top fund owner, with a $317 million position.

Bottom line

American International Group Inc (NYSE:AIG) trades well below some major peers on a price-to-book ratio.

I believe that AIG still has room to move higher thanks to valuation, industry tailwinds and the company’s renewed focus on the insurance industry after shedding non-core assets. While XL Group plc (NYSE:XL), Chubb and Allstate have their strengths in the property-casualty space, I think the stock growth is limited for them given their “rich” P/B ratios, but they pay dividend yields of at least 1.8%.

Marshall Hargrave has no position in any stocks mentioned. The Motley Fool recommends American International Group (NYSE:AIG). The Motley Fool owns shares of American International Group and has the following options: long January 01 2014 $25 calls on American International Group. Marshall is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

The article Still Room for This Turnaround to Run originally appeared on Fool.com and is written by Marshall Hargrave.

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