Expert: Paul Henneman - 8/16/2009

Question
Hi Paul,

I am looking for a long term (5 years or so) stock to put about $1,000 into and was looking at AIG. If I am looking at it correct, the company stock was at over $1,000 a share until the recent fiasco and now it's down around $25 (up from the low of $7).

Would it be smart to put some money into this? It's not something I am planning my future on, but I want to throw some money into something while the market is low.

Answer
Jim,
    Thank you for your question! This would be a very risky investment. Perhaps AIG or bank stocks would have been a better gamble a few months ago when they were very low, but they have come back strong. Your 5 year time frame is good in that the longer out you look, the better potential an investment like that would have. But AIG has significant problems. It is also possible that the investment does very poorly.  Bank stocks in general would fit this category. If you are a 'betting man', and think of the $1,000 as completely dispensable in that you won't mind if you lose most of it, then such an investment would be of interest to you. It could work out very well, or be a complete disaster.
    Take a look at the major bank stocks as well. The would also fit the category of high risk, but interesting long term investments. Where you could go wrong is that 5 years may not be enough for a complete recovery for these companies. It could happen, or it could easily take longer.  Finance is a strong sector, and will come back eventually.  My research company looks out to a few years into the future, and we do not have a buy rating on any of the major banks, or AIG.  Our most undervalued sectors would be Health Care and public utilities, but these are more stable sectors where it will be hard to find a speculative investment that would provide very strong returns. These two sectors typically offer more stable, less risky, but less impressive returns.
   You could also consider a fund that tracks the overall S&P500 index. There is less risk and downside, but probably less upside as well. It all depends on what you are trying to do. Car companies would also be worth considering, their stocks have been beat up terrible, but many theorize that as the economy begins to recover in a year or two, people will start buying cars again. The car companies have cut so much in costs, that this could result in higher levels of profits: returning sales, and dramatically lower costs.

I hope this helps, please do not hesitate to follow up with me if I can be of any additional service,

Best Regards,
Paul Henneman
President
ValuEngine Inc
www.ValuEngine.com