What a week it has been for AIG (NYSE:AIG), the stock reported earnings on Friday morning that showed the first profit in almost two years. The company announced that profits for the quarter were $1.82 billion or $2.30 per share. Analysts polled by Thomson Reuters were anticipating profit of $1.67, and revenue came in about $3 billion stronger than estimates at more than $29 billion. The “whispers” early in the week expected this significant earnings beat coming, and the stock has surged more than 90% over the last five trading sessions. Here is what the traders on Fast Money were anticipating on Thursday night, before the results were announced.
“Let’s talk about AIG first. Nine analysts have a hold on the one has a sell. No one has a buy. Everyone is playing AIG from the short side into earnings tomorrow, what are you looking for? What’s the possible upside? The possible upside could be that the value of these toxic assets that were written down so aggressively over the last couple of quarters will begin to modestly rise. That’s your upside in AIG. Other than that, I don’t getting so hopped up.”– CNBC’s Fast Money 8/6/2009
The fact that AIG actually made money from operations should be viewed as a positive development, but it seems to us that the biggest reason for the rise is a massive short squeeze. The traders on Fast Money agree with David Faber in this regard that the short squeeze is what is driving up AIG and other distressed stocks to huge gains this week, such as Fannie Mae (NYSE:FNM), Freddie Mac (NYSE:FRE), and CIT Group (NYSE:CIT). At Ockham, we prefer to invest in stocks because of their fundamentals, rather than momentum built upon a short squeeze. In this regard, AIG is still a long way from looking attractive even at these prices.