SEAN REIDY
CO-PORTFOLIO MANAGER
OLSTEIN FINANCIAL ALERT FUND

COMPANY: American International Group
TICKER: AIG (NYSE)
PRICE: $65.48 (as of 4 p.m. Friday)
52-WEEK RANGE: $49.91-$71.09
MARKET CAPITALIZATION: $169.96 billion

Sean Reidy is a co-portfolio manager at the Olstein Financial Alert Fund (OFAFX), with net assets under management of more than $330 million. American International Group is a global insurance and financial services company. Mr. Reidy spoke to David Dalley of The New York Sun about why he expects AIG to increase by at least 25% over the next 18 months.

What does AIG do?

They are one of the largest insurance and financial services organizations in the world. They operate in 130 countries. They have four lines of business: general insurance, life insurance and retirement, financial services (including aircraft leasing), and asset management.

Why do you like the stock?

For one, AIG is a huge play on foreign growth. A lot of people are looking for plays in China and India, looking for ways to gain exposure to those emerging markets, and this is one of the safest ways of doing it. The company has been in China since 1920, it was the first Western company there, and it’s been in Japan forever. These are markets where the middle class has really grown and the demand for personal and business insurance is growing very strongly. AIG’s international business is growing at around 12% to 15% per year. It’s a safe play because AIG is an A-rated company, it has a solid balance sheet, and you’re not taking the risk of buying a foreign company to get in on those markets.

That’s the main growth driver. The other area I like is the domestic insurance arena. Because of all of the hurricanes, we’re in a period of higher pricing, so you’re going to see some pretty decent growth in domestic property and casualty. That stronger pricing cycle will last for the next year or two.

There has been an overhang on this stock for a while. They were under investigation by the SEC and the Department of Justice for a while, and that was just cleared up in the last month (they reached a global settlement of $1.1 billion in after tax charges). The old CEO, Hank Greenberg, was forced out in early 2005 following a scandal related to bid rigging and improper reserves. In a nutshell, there was a lot of uncertainty in the market, which dragged the stock down. That’s now all cleared up. The new CEO did a clean sweep of the business, and the black cloud has been lifted. The company can now focus back in the direction of what it needs to do.

What has the stock been doing, and where do you see it heading?

In about June 2004, it was around $78. Then the whole spill out with the old CEO happened and it got knocked down to about $50. We started getting interested in the mid-$50s. We felt that the whole scandal had been overplayed, and that even in a worst case scenario it wasn’t going to be a long-term thing. They’ll take the charges and right the business and finished (which is what has happened). It’s a tremendous free cash flow generator, it generates high returns on equities (about 15% to 16%), and it’s earnings are growing at 12% to 15% a year. People were throwing the baby out with the bathwater. It’s now at about $65, and we think its worth somewhere in the low to mid-$80s within the next 12 to 18 months. If they come in better than expected on some of the foreign divisions, it could trade up at around $90.