Tags: Oakmark | BofA | AIG | value

Oakmark Fund Sees Value in BofA, AIG

Wednesday, 07 Nov 2012 12:40 PM

The Oakmark Select mutual fund believes that financial stocks Bank of America and AIG are nicely priced for gains, according to research conducted by YCharts, a data analysis provider.

Fund managers Bill Nygren and Henry Berghoef view the stock as oversold and are buying even though neither are hot-growth stocks.

“[W]e believe that these companies’ attractive valuations far outweigh their declining profitability … We’re not claiming that financial services businesses are the highest quality businesses out there. Instead, we’re arguing that their current low multiples of earnings and book value are creating an unusual opportunity,” Nygren wrote in a note to shareholders, YCharts reported.

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Before the crisis, both companies traded at 2 times book value; however, that figure has dropped down to 0.5, meaning both stocks represent bargain buys even if valuations fail to return to pre-crisis levels.

Nygren told Barron’s recently that financial stocks in general are looking attractive, even though the days of hefty returns on equity are gone.

“Generally, financials get in trouble when they lend money to people who don’t pay them back. And having been through that experience five years ago during the financial crisis, financials today have much better lending standards than they did then,” Nygren told the publication in September.

“The likelihood of repeating the problems that created the crash five years ago has diminished dramatically.”

AIG reported third-quarter net income of $1.86 billion, or $1.13 per share, a vast improvement from a net loss of $3.99 billion, or $2.10 per share, in the third quarter of 2011.

“AIG again posted a solid quarter, reflecting the continued strength of our core insurance operations and strong investment returns,” AIG CEO Robert H. Benmosche said in an earnings statement.

“We are seeing continued momentum, and we’re building for the future by creating a more streamlined, efficient and nimble company.”

Editor's Note: You Owe It to Yourself to Know What Obama and Bernanke Are Hiding From Americans

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