Securing Trust

In this edition of the Smart Investor newsletter, we examine one of the leading global insurance companies. But first, let us delve into the latest Portfolio news and updates.


Portfolio Stock Updates

❖ Check Point (CHKP) reported a 6% increase in revenues and a 13% rise in EPS in Q1, surpassing estimates, while projecting continued strong growth in this quarter.

❖ EMCOR Group (EME) surpassed analysts’ Q1 EPS estimates by 40% while strongly beating revenue projections. The management lifted its full-year 2024 revenue and EPS guidance.

❖ Textron (TXT) slightly missed on both revenue and EPS in Q1. While overall revenue grew year-on-year, it was weighed down by the continued decline in the Industrial segment. The company said it plans to expand its restructuring and cost-cutting measures to counter the softness in Industrial demand.

❖ Applied Industrial Technologies (AIT): Fiscal Q3 revenue and EPS results surpassed analysts’ estimates. The company also announced a new acquisition, which is seen by analysts as having the potential to enhance AIT’s automation offerings and increase sales.

❖ PayPal Holdings (PYPL) released its Q1 results, featuring a 1% decrease in active accounts, though this was strongly outweighed by a 14% surge in total payment volumes. The company surpassed analysts’ expectations for the quarter’s revenue and EPS.

❖ Super Micro Computer (SMCI) reported the results for the first quarter, which included a 308% year-on-year surge in EPS to levels considerably above estimates. Revenue grew by 200%, but slightly missed analysts’ estimates. This, coupled with the inventory buildup which is aimed at easing supply constraints in some components, led to a sharp decline in the stock. SMCI’s management lifted its FY2024 revenue guidance, implying growth of ~580% from the previous fiscal year, and raised profit outlook for the full year well above analysts’ consensus.


Portfolio Earnings and Dividend Calendar

❖ The Q1 2024 earnings season is in full swing, with multiple Smart Investor Portfolio companies scheduled to release their quarterly results in the coming week. The reporting firms are CDW (CDW), Flex (FLEX), Cencora (COR), Cigna (CI), ITT (ITT), Parker Hannifin (PH), Regeneron (REGN), Howmet Aerospace (HWM), Cboe Global Markets (CBOE), Vertex Pharmaceuticals (VRTX), Arista Networks (ANET), McKesson (MCK), Assurant (AIZ), and Jacobs Solutions (J).

❖ There are no ex-dividend dates in the Smart Portfolio calendar until our next Newsletter.



New Buy: American International Group (AIG)

American International Group, aka AIG, is a leading global insurance organization, which offers insurance products for commercial, institutional, and individual customers in approximately 190 countries and jurisdictions around the globe.

With a market capitalization of $50.2 billion and annual revenue of $46.8 billion, AIG is one of the largest insurance companies in the world and the second-largest non-health insurer in the U.S. It ranks #76 on the Fortune 500 list of the largest U.S. companies by revenue. The company has been publicly traded on the NYSE since 1984.


Back To The Core

The company was established in 1919 in Shanghai, China, as a general insurance agency, and relocated its headquarters to New York City in 1939. AIG was at the center of the financial crisis in 2008, hit by its exposure to risky mortgage derivatives. It was deemed “too big to fail”, and received a government bailout which it finished repaying in full in 2012. AIG succeeded in recovering its reputation, positioning itself as a trustable and solid global insurance provider.

During the years after the crisis resolution, the company embarked on a large-scale restructuring program, which included divestitures of several non-core businesses as it refocused on insurance. One of the largest and most profitable of these streamlining activities was finalized in 2022, when AIG’s Life and Retirement unit was spun off and began publicly trading as a separate company under the name “Corebridge Financial”. In 2023, AIG sold its Validus Re and Crop Risk Services subsidiaries and proceeded with the reduction of its holdings in Corebridge.


Less Diversified, More Profitable

The transformation at AIG is still ongoing, but it is already bearing fruit. While portfolio diversification has decreased due to the separation of Life & Retirement operations and other divestitures, the company is now much better positioned for growth in its core commercial and personal insurance businesses. Besides, AIG’s extensive global operations help diversify its risk exposure and revenue streams, providing a hedge against macroeconomic and policy risks.

A more focused business has allowed AIG to generate more consistent revenues on its insurance products, employ a disciplined approach to pricing and risk management, and increase its investment portfolio profitability. These combined factors have led to a better balance of risks vs. opportunities. Thus, the current high interest-rate environment improves yields on investment without the need for higher-risk exposure. On the other hand, when interest rates eventually come down, higher spreads on certain insurance products would mitigate decreased investment income.


Successful Transformation

One of the important focus points of AIG’s multi-year transformation process that began after the 2008 crisis was the return to robust financial health. As a result, the company is now well-capitalized with robust liquidity, while having substantially lower liabilities. AIG has paid down a large part of its debt in recent years, reaching a net debt-to-equity ratio of just 6%. The company’s debt carries high credit ratings of “A-“ at Fitch, “BBB+” at S&P, and “A2” at Moody’s.

During the past five years, AIG has made efforts to reduce earnings volatility and strengthen its income streams through reducing catastrophe exposure, using reinsurance, avoiding riskier lines, increasing rates to cover for costs of loss and inflation, and controlling expenses. The outcome of these measures was a substantial improvement in operational performance. While the total annual revenue remained almost unchanged in the past five years (brought down by divestitures), earnings-per-share surged at a CAGR of 280%.


Robust and Profitable Business

AIG reports the results of its businesses through three segments: General Insurance, Life and Retirement, and Other Operations. General Insurance offers property & casualty insurance products to customers around the world. Life and Retirement provides a broad portfolio of life insurance, retirement, and institutional products offered through an extensive, multichannel distribution network. Other Operations is a unit within AIG that primarily consists of income from assets held by AIG Parent and other corporate subsidiaries, intercompany eliminations, consolidated investment entities, assets in run-off, and legacy holdings.

The company’s Q4 and full year 2023 financial report underlined the success of its consolidation and business portfolio optimization process, as both its insurance segments delivered robust results. AIG not only by far surpassed analysts’ earnings-per-share estimates in each quarter of last year but also posted either double- or triple-digit EPS growth in every quarter of the year. As a result, in 2023 AIG delivered outstanding financial results, highlighted by excellent underwriting performance, with the full-year adjusted EPS surging by 33% from 2022.

AIG is scheduled to report its Q1 2024 results today after hours. The company is expected to build on its successful delivery in 2023, and while revenue continues to be flat or is shrinking due to the divestitures and business-line sales, EPS is expected to increase year-on-year.


Total Return in Focus

AIG has risen over 40% in the past 12 months, producing double the return of the S&P 500. However, it remains moderately valued versus its peers in the industry, sitting at the bottom of the valuation range. In addition, based on future cash flows, the company is trading about 40% below its fair value.

Adding to the investment case, AIG rewards its shareholders through dividends and buybacks. It has been paying dividends since 2013, increasing the payout each year (including a 12.5% raise in 2023). While its current dividend yield of 1.9% is lower than the Financial sector’s average, AIG’s balanced capital management and financial strength, coupled with a very modest payout ratio, support the outlook for continued, significant dividend growth in the future.

In addition, AIG performs aggressive buybacks, which have resulted in a 16% decrease in its share count during 2022 and 2023. In 2023 alone, the company bought back its shares for $3 billion. Since the start of 2024, it has repurchased an additional $760 million of common shares, and the management said it expects to continue at this pace, subject to market conditions.



American International Group is an insurance giant, successfully proceeding on the transformative journey that has helped it to regain its image as a trusted financial institution, while vastly improving profitability and reducing risk. The company’s stock performance is expected to continue to reflect its strong delivery, supported by aggressive share repurchases. Taking into account these factors, as well as its rewarding dividends and modest valuation, we believe that AIG can be a valuable addition to the Smart Investor portfolio.



New Sell: Molina Healthcare (MOH)

Molina Healthcare, Inc. is a managed care provider. The company is focused exclusively on healthcare programs for families and individuals who qualify for government-sponsored healthcare. Molina contracts with state governments and serves as a health plan benefactor, offering Medicaid coverage as well as Medicare plans. Molina also offers Marketplace plans to enable its Medicaid members to stay with their providers as they transition from Medicaid. In addition, the company offers healthcare services to independent physicians and groups, hospitals, and ancillary providers through contracts.

Molina’s stock has encountered volatility and analysts’ downgrades in the past month, which continued after the company’s earnings release on April 24th revealed a beat on both revenue and adjusted EPS. The company reported membership growth that drove premiums higher; in addition, investment income also contributed to bottom-line growth. However, net income growth was limited due to a surge in medical care costs and an increase in various expenses. Management reiterated its full-year 2024 guidance, envisioning continued revenue and EPS increase.

However, analysts were not reassured by the results, with many of them reducing price targets. Thus, Wells Fargo analysts cut their MOH price target sharply, saying they are worried the company’s guidance hasn’t fully accounted for a potential increase in medical loss ratio (MLR) in 2024, as did other managed healthcare providers. Analysts from other Wall Street firms, such as Jeffries, Barclays, and others, reduced their price target as well.

While Molina Healthcare remains in stellar financial health and has displayed solid financial performance, near-term headwinds are buffeting the company. In addition, the sector is now facing increased uncertainty regarding potential government policy changes. We may revisit the stock in the future, but for now, we believe it is prudent to lock in the gains and sell the stock.



Portfolio Stocks Under Review

❖ There are currently no stocks under review.



Smart Investor’s Winners Club

*The 30% Winners Club includes stocks from the Smart Investor Portfolio that have risen at least 30% since their purchase dates.

Despite the wild market swings in the recent week, our exclusive club’s ranks still include 13 stocks; however, APH has replaced STLA at the top of our performance table.

The Winners Club now includes SMCI, GE, AVGO, EME, ANET, CDW, TSM, AMAT, GD, ORCL, PH, APH, and ITT.

The next in line to enter the Winners’ ranks is now Cigna (CI) with a 26.7% gain since purchase. Will it close the gap, or will someone else outrun it to the finish line?



Smart Investor Portfolio

 Portfolio Return YTD
Portfolio Volatility (Beta) Portfolio Dividend Yield
13.32% 1.00 0.77%


New Portfolio Additions

Ticker Date Added Current Price
AIG May 1, 24 $75.31

New Portfolio Deletions

Ticker Date Added Current Price % Change
MOH May 3, 23 $342.10 +14.21%

Current Portfolio Holdings

Ticker Date Added Current Price % Change
SMCI Nov 8, 23 $858.80 +236.26%
GE Jul 27, 22 $161.82 +189.58%
AVGO Mar 22, 23 $1300.27 +106.09%
EME Nov 1, 23 $357.17 +73.07%
ANET Jun 21, 23 $256.56 +69.34%
CDW Jun 29, 22 $241.86 +53.00%
AMAT May 31, 23 $198.65 +49.02%
TSM Aug 23, 23 $137.34 +46.43%
GD Dec 22, 21 $287.09 +40.90%
ORCL Dec 21, 22 $113.75 +39.57%
PH Oct 11, 23 $544.91 +36.98%
APH Aug 9, 23 $120.77 +36.56%
ITT Oct 18, 23 $129.34 +35.42%
CI Jul 12, 23 $357.04 +32.88%
STLA Sep 6, 23 $22.30 +22.80%
CXT Oct 25, 23 $60.81 +17.48%
CHKP Jul 19, 23 $149.42 +17.36%
MCK Dec 13, 23 $537.21 +16.24%
VRTX Aug 2, 23 $392.81 +12.96%
AIT Dec 6, 23 $183.25 +11.24%
TXT Nov 29, 23 $84.59 +9.99%
DELL Mar 27, 24 $124.64 +8.71%
PYPL Apr 17, 24 $67.92 +7.08%
FLT Jan 17, 24 $303.26 +6.79%
ELV Mar 6, 24 $528.58 +6.07%
FLEX Feb 21, 24 $28.65 +3.32%
HWM Apr 10, 24 $66.75 +1.37%
CBOE Apr 24, 24 $181.15 +1.30%
SNX Apr 3, 24 $117.84 +1.21%
COR Mar 20, 24 $239.05 -1.36%
J Mar 13, 24 $143.53 -3.79%
AIZ Feb 28, 24 $174.40 -4.04%
REGN Feb 7, 24 $890.66 -5.03%
WRB Jan 31, 24 $76.97 -5.71%


What’s Next?

Our next commentary will come out on Wednesday, May 8thUntil then – we wish you a world of investment success!

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