AIG WARRANTS Risky Buy
Legendary investor Shelby Davis made a good chunk of his fortune buying undervalued insurance stocks on margin, so it made me wonder if he would had dipped his toe in the waters of AIG Warrants (AIG-WT) at these levels.
Davis looked for insurance companies with low PE’s and discounted book values, years ago, he also once maintained a large position in AIG stock. So what would Davis think of AIG now ? Shares of AIG are certainly trading at a discount to book value. The stock closed on Thursday at $24.79 and it has a book value of $47.32.
AIG also has a PE of about 8. Now some skeptics may feel that an 8 multiple isn’t a bargain for such a controversial name that still has a significant U.S. Government stake hanging over the share price. On the other hand, bulls might say that between the periods of 9/30/2006 and 12/31/2007, AIG did trade at multiples of 15x and 24x earnings at one point or another.
AIG WARRANTS Trying To Make a Comeback
By no means are we saying to wake up Friday morning and purchase shares in AIG or AIG Warrants, but based on it’s current valuation, you can see why some are bullish on the name.
Here is the breakdown of how AIG Warrants work :
AIG Warrants have a strike price of $45 and expire on 1/19/2021 and closed Thursday’s trading at $7.49. Just remember, that an additional secondary offering to repay the U.S. Treasury could attract shorts and continue to weigh on the stock. You also have to view investments in any warrant as if it were a LEAP option because of the absence of shareholder equity. So at this point, just add AIG Warrants to your watchlist.
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