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An AIG comeback is possible – but not likely


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Dear Mr. Berko:

On my broker’s advice, I bought 600 shares of American International Group at $49.80 in January 2008. I still have the stock at a big loss. Now he wants me to buy 6,000 shares at $1.70, which he says will lower my cost basis to $6 a share. He’s adamant that it will move to $10 or $12 next year. Please give me your opinion. Also, please give me your opinion of Comcast. I bought 600 shares at $21 and, as usual, it went straight down. Now my broker wants me to buy 600 more shares at $12.50, which he says will reduce my cost basis to $17.

S.P., Rochester, Minn.

Dear S.P.:

I will try to be positive! I truly believe there’s a very remotely plausible extension of reality that American International Group Inc. (AIG-$1.71) can return to respectability and become an honorable company again. However, I think: 1. your broker has been drinking too much prune juice; 2. his payment is late on his BMW lease and he needs a commission; or 3. he has inside information. I suspect either 1 or 2 is correct.

Frankly, I’m surprised he didn’t suggest a 10,000-share purchase, which would reduce your basis to $4.50 a share, or an 18,000-share purchase, which would lower your basis to $3 a share. I think it’s a stinky idea. However, sometimes a stinky idea can produce a rare rose. So if you speak French fluently, if you gargle with battery acid, if you’re immune to radiation poisoning, if you’re left-handed and losing another $9,000 or $15,000 or $30,000 is a pebble in your financial pail, then go for it. Heck, perhaps your broker has inside information that AIG will be bought out by Taco Bell at $10 to $12 a share.

But cleaning up AIG, which is 79 percent owned by the government, is a more difficult task than cleaning the Augean stables. The stables were so filthy that Hercules had to divert the flow of two rivers to carry away the mess. AIG is selling all sorts of assets to raise cash, and there may not be much of the profitable AIG left next year. In the meantime, many AIG clients have migrated to other insurers. So building a book of new clients and returning to profitability with the AIG name could take a couple of generations.

Comcast Corp. (CMCSK-$14.08) is a $35 billion revenue cable television operator with 24 million customers, an Internet provider with 13 million customers, and a phone company with 5 million subscribers. Its two- to three-year outlook appears fine because it should benefit from the national shift to digital cable. CMCSK also has a strong cash position and a share price that trades nearly 2 points below its $15.85 book value.

However, management needs to increase capital spending, which it certainly can afford, for broadband Internet usage to keep users from leaving.

The long-term prospects for CMSCK are not unattractive. This company continues to record modestly higher revenues in a difficult economy. Its average monthly billing of $108 per household, which should decline, has so far offset continued declining advertising revenues. The company expects an 8.6 percent net profit margin in 2009 on $35.5 billion in revenues. Wall Street looks for earnings to grow by 10 percent in 2010.

However, I think a 600-share purchase at the current $14.08 might be premature. I don’t believe that CMCSK will move back to your original $21 purchase price in the next year or two. I’d consider selling the shares you currently own and taking a tax loss.

Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, Fla. 33429 or e-mail him at malber@adelphia.net. © Copley News Service

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