Insurance Australia Group
Recommendation
Insurance Australia Group’s (IAG) share price has increased 12% since the prices in the recommendation guide were increased in IAG: Result 2012 from 23 Aug 12 (Hold – $3.92). After the insurance industry’s record year of claims in 2011, IAG is bouncing back with higher premiums and profits expected in 2013. Mr Market has bid up the company’s share price accordingly and rubber-stamped the company’s Asian expansion which we view more cautiously. Offloading all or a major part of the poor performing UK division at a decent price would be icing on the cake.
For shareholders the right course of action from here isn’t clear-cut. We’re cognisant that IAG's valuation isn't cheap and our margin of safety is diminishing, but the share price would likely increase if the UK division was sold. If you made the tough decision to buy into the fear at much lower prices, you’ll also want to maximise your profits as James Greenhalgh recently discussed in point six of What matters: An investing evolution. Often the best decision in these situations is to do nothing and let events unfold.
If you’ve got superior investment options then you might sell out now. We’re taking a middle of the road approach and downgrading to Take Part Profits and reducing the portfolio limit to 3%. Should the share price approach five dollars we’ll probably switch to Sell, but for now we’re downgrading to TAKE PART PROFITS.