AIG Warrants | Up 280% in 20 Months


The Warrant Report
June 10, 2013

AIG Warrants | Up 280% in 20 Months

In this issue:
The American International Group, Inc. (AIG) stock ticker is seen on a monitor as traders work on the floor of the New York Stock ExchangeU.S. Markets
 Gold & Silver
 AIG Warrants | Up 280% in 18 Months
 
U.S. Markets:
As measured by the Dow and the S&P 500 the markets are still holding up near record levels but caution is in the wind. We are long overdue for a significant correction, but the good news is this will give a great entry point for those not invested and should give us numerous great opportunities with long term warrants.
Gold & Silver:
Last week we were “Waiting For The Next Shoe To Drop”,
“…For gold and silver, while there has been some recent strength and gold traded briefly above the $1400, we feel there is another shoe to drop. We remain very cautious on the short term. Some of our sources still see the potential for a pullback in gold to the $1100 level, but at least to $1280. Now all of us know that anything can happen in these markets and yes, there is a chance the bottom in gold, silver and resource shares is already in place. However, short term we are
Waiting For The Next Shoe To Drop“….”
Last Friday with the announcement of the U.S. Jobs report, gold and silver plunged. Is this the beginning of the next leg down to $1280? We’ll know more soon but again, caution is the operative word while continuing to seeking out those over sold bargain shares.AIG Warrants | Up 280%
The markets in the U.S. have provided many investors with a great ride over the last 18 months or so. The exact opposite has taken place in the resource sector with gold, silver and shares down significantly.Today, we would like to focus on gains which could have made by investing in the warrants of AIG which trades on the NYSE. Many readers may still have some bad feelings about AIG as well as other financial services companies and banks after the meltdown back in 2008. Perhaps you need to ‘get over it’, as many of these companies have warrants trading and you could have made a lot of money.

American International Group
– AIG:NYSE
AIG-WS:NYSEAIG warrants give holders the right, but not the obligation, to purchase one share of AIG common at an exercise price of $45.00 and an expiration date of 19-January 2021. Yes, that is correct, the warrants do not expire until 2021.
Let’s take a look back at what would have happened if you would have purchased the warrants in lieu of the common shares. The charts below appear to be similar but we will explain the difference below.




Comparison:
Buy common shares in October 2011 @ $20   –  Sell today @ $45 – Gain 125%
Buy long term warrants in October 2011 @ $5 – Sell today @ $19 – Gain 280%
The leverage is 2.24 to 1 which is great.

You made over 2 times what you would have made investing in the common shares of AIG.

All the charts look bullish but the last chart is the relative performance of the warrants over the common shares and it is topping out and this would probably be a good time to be a seller of the warrants. Currently, we have an Over Valued rating on the AIG warrants, in essence, the warrants are greatly over valued relative to the common shares. In other words, the warrants are not a buy here and if you own them, it is a good time to let them go.

The message is simple
:

  • if you find a company you like
  • the company has a long term warrant (over 2 years before expiration)
  • the warrant is trading at fair value or under valued when you buy it (we tell you this in our leverage calculations in our warrant database) and
  • the market environment is positive

then there is no reason NOT to purchase the warrants. Think about it: you are here to make money, look at the real live facts again, if necessary.
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To rap up, don’t be discouraged if you are down in your portfolios, you should realize by now that the resource sector is not for the weak hearted. You must have great patience and always on the hunt for new opportunities and right now your timing is better than ever.


    Dudley

Dudley Pierce Baker
Founder and Editor

Guadalajara-Ajijic, Mexico

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