January 2005  Email this  Print this
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STOCKS
Blue Chip on Sale
by David Landis
It can be risky to invest in a company laid low by scandal. But buying shares of American International Group may be a chance worth taking. The insurer is accused by New York Attorney General Eliot Spitzer of participating in a bid-rigging scheme run by a unit of Marsh & McLennan. And federal regulators are investigating whether AIG (symbol AIG) sold policies designed to allow companies to manipulate their reported earnings. At $61, AIG trades at its lowest ratio of price to book value (assets minus liabilities) since 1995.
But AIG, which has $678 billion in assets and operations in 130 countries, is so large and diverse that it's unlikely the problems will become debilitating. AIG sells life insurance and property-and-casualty insurance, and the company is involved in other financial services. AIG is well positioned in Japan and China, where demand for life insurance is exploding.
Morningstar analyst Dreyfus Neenan says that even if AIG had to pay a $10 billion fine and its property-and-casualty business didn't grow for five years (neither of which he thinks is likely), he would still knock only $8 off his $80 estimate of the value of AIG's shares. "The bulk of its businesses won't be affected" by the legal problems, he says.
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