When you are a poster child for failure, like American International Group Inc (NYSE:AIG), it takes a while. The government once owned more than 90% of American International Group Inc (NYSE:AIG). As of March of this year, that figure is 0%. Meanwhile, Fairholme Capital Management’s Bruce Berkowitz (aka the defending Domestic-Stock Fund Manager of the Decade, as named by Morningstar) is so confident in American International Group Inc (NYSE:AIG) that he has dedicated almost 50% of his stock portfolio to AIG shares and warrants. In other words, he’s bet his career on AIG.
Here’s why. The government is now out of its business. Its balance sheet is now about half of what it was at its 2007 peak. As CEO Robert Benmosche put it on CNBC, “For now, AIG is a smaller and more focused company. It’s a company that is in the insurance business. We are out of some of the financial derivatives and other things we were doing. So we’re really basically going back to our roots, which is an insurance company.” Now AIG can focus on its operational goals, like integration across units and better underwriting. As it achieves those goals and sentiment shifts, shareholders should benefit with multiples closer to history.
It’s a similar clean-up story at Citigroup Inc (NYSE:C), whose balance sheet is now 20% smaller than it was in 2007. By jettisoning its non-core and/or toxic assets, Citi hopes to come back stronger. What gives me assurance that this could happen is the “Under New Management” sign. I’m a fan of chairman of the board Michael O’Neill’s turnaround of Bank of Hawaii Corporation (NYSE:BOH) at the turn of the century. His legacy of conservatism is why I own shares of Bank of Hawaii in the real money portfolio. He’s been chairman since April 2012 and has had Michael Corbat as his CEO since October 2012. The proper continued handling of Citi’s turnaround is key to outsized returns, and I like management here (as I do at Apple and AIG).
Let’s move from arguably the worst-run big bank during the financial crisis to arguably the best: Wells Fargo & Co (NYSE:WFC). There’s good reason Wells Fargo & Co (NYSE:WFC) is already trading close to two times book value while Citi is at a discount. Wells has been healthy enough to more than double its size since 2007 thanks to the acquisition of troubled Wachovia (that’s also why many of its loan quality metrics are depressed). More recently, it’s been able to capture a mind-blowing third of mortgage activity. As interest rates rise, the mortgage pickings on refinancings will be slimmer, but banks could also have the opportunity to widen their interest rate spreads. Well-run banks can make these transitions smoothly. The reason Wells Fargo trades at a premium, and why I’m buying more of them at said premium, is that its history, management, and culture all point to it being able to thrive in most any environment. That quality of earnings and operations is worth the premium.
The article 4 Stocks I’m Re-Buying originally appeared on Fool.com and is written by Anand Chokkavelu, CFA.
Anand Chokkavelu, CFA owns shares of Citigroup, Apple, Wells Fargo, AIG, and Bank of Hawaii and warrants on Citigroup, Wells Fargo, and AIG. The Motley Fool recommends AIG, Apple, and Wells Fargo. The Motley Fool owns shares of AIG, Apple, Bank of Hawaii, Citigroup, and Wells Fargo and (NYSE:WFC) has the following options: Long Jan 2014 $25 Calls on AIG.
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