Whitney Tilson presented on several of his older ideas and a few new ones, and started off by telling us that the most dangerous three word phase in investing is “I Missed It.”
That’s the phenomenon of missing a huge performer because you don’t want to buy after it’s risen — just because you missed a run, and the stocks he’s talking about are at all-time highs, but you haven’t missed it yet.
AIG has gone up since he talked about it near $30 a year ago and it’s now up 50% but may now be cheaper, safer and better now than it was then. The company has dramatically simplified into the core insurance companies and SunAmerica financial services.
The stock has not moved to reflect what’s happened over the past year — $20 billion in asset sales, another $5 billion coming, the 77% stake held by Treasury is now gone, AIG repurchased $13 billion at half of book value. That juiced the book value substantially.
The next catalyst will be return of capital, a 2% dividend and buybacks probably by the end of this year — buybacks are preferable at these low prices.
Earnings beat consensus dramatically, operating income up 28%, 50% better than consensus, combined ratio down to 97, and Tilson thinks they’ve been sandbagging earnings by over-reserving to get the stock down until the government was out and the management options were struck. Combined ratio should return to being average and they’ll become substantially more profitable, repricing the stock and driving higher earnings.
Tilson thinks sum of the parts value is $54 to $79. But he thinks the upside is far more dramatic because the management incentives are just about to hit — they’ve been dramatically sandbagging earnings and the earnings should shoot up this year and next.
This is analogous to Metlife demutualizing in 2000 — and Benmosche was the CEO of MET then, it was boring and stodgy and they then doubled it within a year. AIG has not outperformed the market this year by much, and he thinks we’re a third of the way toward doubling this year and trading at about book value.
Berkshire Hathaway (BRK-A or BRK-B) is doing extraordinarily well, as you’ve probably noticed — for the first time in a long time, Buffett and Munger were thoroughly excite and see nothing wrong and earnings are “going nuts” ...