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Not a Cloud in Sight...
Dear American Capitalist Reader,
In late November 2006, shares of AIG were grossly overbought. Technically, once we got word of an extremely overbought W%R read (a component of the Death Cross Trader System), we knew AIG was overdue for a correction. AIG had just put in a bearish, engulfing candlestick of the previous day’s hammer formation (another bearish sign of a coming reversal). And while AIG had used its upper Bollinger Band as support, it crashed through that support line on news of Department of Justice and SEC investigations. Days later, AIG dropped from more than $72 to about $69.50.
However, AIG looks to have bottomed out at its current price of $70. Again, technically, we have another doji reversal signal… this time at the bottom of the trend (a doji at bottom of trend can be used as a bullish reversal signal).
Fundamentally speaking, the company (once entangled in investigations that rocked the core of the insurance industry, and whose accounting probes led to the departure of Hank Greenberg last year) has become quite the turnaround story. The company has posted two good quarters of better-than-expected numbers (Q2 and Q3 2006). Q3 net income more than doubled to $4.22 billion or $1.61 a share.
And with the overhang of regulatory mishaps behind the company and improving fundamentals, investors can comfortably return to the stock without much concern that risk will outweigh reward. Plus, the company can now return to focusing on improving its foreign life operation, which is expected to shake troubles (including disappointing sales growth) and remain a main catalyst for AIG’s overall profit growth. And, the lack of hurricanes this past season also means that revenue should benefit from any pre-season rate augmentation.
Even better: According to Barron’s, the belief is that “AIG is positioning itself to deliver double-digit earnings growth in foreign life in 2007 and 2008 as it merges its Edison and Star life companies in Japan and focuses on shifting its product mix to higher margin, less interest-rate-sensitive products across Southeast Asia.”
You may want to use this recent dip in AIG shares to buy on the cheap.
Take care,
Ian L. Cooper
Editor, Death Cross Trader and Early Alert Trader
