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Is a Profitable AIG a Stock Worth Buying?

NEW YORK ( TheStreet) -- AIG (AIG - Get Report) is expected to turnaround in the fourth quarter and is poised to triple its earnings in 2012, but analysts are still reluctant to turn bullish on the stock.

The bailed- out insurer, due to report later this month, is likely to have earned $1.1 billion in operating profits in the last quarter of 2011, compared with a $2.2 billion loss a year earlier, according to FactSet.

The significant turnaround might make AIG the biggest fourth-quarter earnings growth driver for S&P 500, along with Apple (AAPL), according to an Associated Press report .

Shares of AIG were, ironically, among the worst performers on the S&P 500 in 2011, declining 52%. In the early weeks of 2012, shares have rebounded by about 15% to $26.70.

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But analysts appear to see little further upside to the stock, as it continues to be weighed down by volatile earnings, low returns on equity and the prospect of a big sale of stock by the insurers' government overlords. The median price target at $26.50, according to Thomson Reuters, which is slightly below Tuesday's closing price.

The biggest technical overhang for AIG shares has been the prospect of future sales of stock by the U.S. Treasury Department, which still owns 77% of the company. Investors are reluctant to build positions in the stock ahead of a big sale by the government for fear that it will pressure prices. Concerns that the Uncle Same may even consider selling shares at lower than $29 levels, roughly the price at which the Treasury breaks even on its investment in the company, has also weighed on the stock.

Fundamentally, analysts are actually positive on the company from a long-term perspective.

"Management has come a long way in rebuilding and refocusing the organization to ultimately be one of the higher-growing and more-profitable global insurance companies, " William Blair analysts wrote in a report last month. "In the last several years, the company has gone from an overleveraged and highly complex diversified financial company to an organization mainly centered on core insurance markets, where it has significant strength," they wrote, adding that the company was "materially de-risked."
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