Published: Thursday, 12 Nov 2009 | 2:46 PM ET

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To much of the public, AIG is a dead company on the government dole. But to investors, it's been something completely different: a cash cow.

The troubled insurer—the poster child for all that went wrong with Wall Street and led to last year's financial crisis—has quietly seen its shares jump about 50 percent over the past five months, to about $37 a share.

This comes even as US taxpayers own nearly 80 percent of American International Group

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[AIG  Loading...      ()   ], whose stock was trading as low as 33 cents a share last March after questions arose on whether it could survive the subprime mortgage meltdown.

Jeff Cox
Staff Writer
CNBC.com

To the casual observer, it might seem a travesty that a company that received an $85 billion government bailout should reward investors so richly. But because of the government's ownership stake, US taxpayers are likely to be among the biggest beneficiaries of the rebound.

Indeed, on Wall Street, AIG is considered much differently than it is on Main Street.

"If you're a believer that we have suffered through the worst, it's not a bad play," says J.J. Kinahan, chief derivatives strategist at TD Ameritrade's thinkorswim.com trading group. "They went into areas they weren't familiar with. But within certain areas—personal insurance, corporate insurance—they're still well-respected. As long as they keep their focus on what they're good at, they're a fine company."

AIG's stock has traveled a wild journey for the past two years.

It hit a split-adjusted peak of $14.53 on June 1, 2007, a few months before the world fell apart for the financial services industry. AIG got into trouble primarily for servicing insurance on mortgages—the much-demonized credit default swaps—given to low-quality buyers. When the loans began defaulting in droves, AIG had to pay up and lacked the capital to cover its losses.

AIG's shares crashed on Sept. 16, 2008, when the government took its nearly 80 percent stake in the company. At its worst point, the stock hit an intraday low of 33 cents a share on March 6, 2009.

The stock stayed below $2 a share until July 1 of this year, when the company issued a 1-for-20 reverse split. Though the move, aimed at hiking the price on a company's stock by cutting the amount of shares oustanding, sometimes can be the stock market's equivalent of football's Hail Mary pass, AIG's went well.

The stock went above $19 the following day and, though falling into the $13 range in early August, hasn't looked back since.

AIG's ability to restore its reputation as an insurer is just one aspect of what has the market interested in the company. Granted, most are traders at this point, but some longer-term investors are starting to come around.

Most recently, Moody's rating service predicted that AIG among others will be able to start down the path of repaying government bailout money that kept the insurer afloat.

That cheered investors, as did the apparent resolution of a dispute between AIG CEO Robert Benmosche, who threatened to quit over dissatisfaction with government-set pay scales for company executives.

Credit Suisse, in a research note earlier this week, called the Moody's projections "a net positive" for AIG but said it would not give "a big endorsement for the company" until the picture becomes clearer of whether AIG will be able to get out of its government obligation.

Indeed, for some traders the risks are still too high to start chasing AIG's stock rally.

"I'd rather go to a casino," says Dave Lutz, managing director of trading for Stifel Nicolaus in Baltimore. "In buying AIG stock, you might have better odds at a casino because you know the game, you know what you're dealing with. The government's going to continue to change the rules—capital requirements, salary requirements, what they need to do as far as business goes."

Kinahan concurs with that sentiment to a degree, saying he wouldn't hold AIG as part of his core portfolio but is considering buying it on a speculative basis.

From a psychology standpoint, chasing a stock with so much risk both to the upside and the downside is what fuels many short-term investors.

"Most people do like to play something if it has fun and excitement. Just like going to Vegas, it's speculative, you have to expect not to see the money again," Kinahan says. "When you play things like this you should expect extra returns because you're taking extra risks."

But portfolio managers who handle clients with longer-term perspectives on investing aren't willing to jump off that bridge.

Doug Lockwood, chief investment officer at Cornerstone Wealth Management in Auburn, Ind., says there are too many intangibles out there to justify taking such a big risk.

"Why bother?" he says. "Why would I as an analyst or adviser spend a lot of extra time trying to figure out what's going on in those balance sheets or income statements when there are so many other (companies) I could get comfortable with and feel more secure about my clients' well-being?"

It's not particularly surprising to see some people take that kind of chance, Lockwood says, but it's not for him.

"In the financial world there are quite a few different banks, quite a few different insurance companies that didn't get themselves into that situation," he says of AIG. "I just don't think that's the prudent way, to take clients' money and take that kind of risk."

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