As AIG Sinks, Its Value Rises

American International Group (NYSE:AIG) has been taking a beating over the past two weeks, and even with its recent 20-1 reverse stock split, it’s been headed back down.

So far in fact, that we’re getting close to the price we talked about on March 9 - $.35 (or split adjusted $7.00).

At that time, we recommended readers go the route of John Templeton and pick up some penny stocks in the S&P 500. Moreover, just ten days later readers who jumped in were rewarded with a 437% gain.

We could be setting up for a similar situation.

The stock split does change the dynamics - mostly emotional - of the current stock plunge. Investors feel better about selling at $9.00 than they did at .40, even though the value might be the same.

On the other hand, we could see this stock slip much lower that it did in March simply because the dynamics of short sellers and a higher price come into play.

While the news today has been centered upon the government approving bonuses for AIG employees, it’s not terribly important. Most of the big news concerning AIG, and the main reason it has fallen so much, is because Citigroup (NYSE:C) reported that AIG might have no shareholder equity.

Ouch. But how does that change things?

Regardless of whether this stock sinks lower - or much lower - as an investor/speculator considering the long-term movement of this stock you need to ask yourself two things.

One, are the long-term prospects of this stock any different than they were in March? Two, do you think the stock will go bankrupt? If you can easily answer these questions, than you have a good idea of why AIG could be another great short-term investment.

We’ll be keeping our eye on this one. Today the price is down to $8.5 - and as the stock price moves closer to $7, the more interested we’ll be.

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