Stockchase Opinions

Darren Sissons Great West Lifeco GWO-T COMMENT Dec 05, 2013

Why is this company climbing so much faster than ManuLife (MFC-T)? If you look back pre-crash days, ManuLife was a $42-$44 stock and it really rose to the highs on the back of variable annuity growth. However, variable annuities provided a guarantee to policyholders on certain levels of payout. Ultimately, that was the noose upon which the company got hung. Response by management was to hedge the book aggressively and this has effectively insulated the company from downside but they did it at the bottom of the market. Now the upside associated with the rising capital markets is not as direct as expected, because so much of the book has been hedged. Companies that have less hedging have performed much better.

$32.140

Stock price when the opinion was issued

insurance
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TOP PICK

Revenues from asset management, insurance, annuities, health benefits. Very diversified. Around for decades. Likes the safety and growth over time. Dividend growth is about 8%. Payout ratio still in 50-70% range. High quality. Not necessarily a home run, but a single: core holding for the long term, dividend payments, some price appreciation. Yield is 4.6%.

Because it's diversified, interest rate moves benefit different segments at different times.

(Analysts’ price target is $49.50)
COMMENT

Both companies have done quite well and both are cheap with secure dividends. It has been a good year for the sector but they may not get the same returns going forward.

HOLD

All the insurance names, both in Canada and the US, continue to work. If interest rates do, in fact, go higher, that will only be beneficial for lifecos and other insurers. The chart looks fantastic. Good run, so there is some weakening in the intermediate term.

If a long-term holding, best thing you can do is sit on your hands and do nothing except participate in the DRIP program. Especially if he's right on the broader call of rates being 8-10% in the secular bear market of 2030-40, should be a big tailwind for insurers.

BUY ON WEAKNESS

Really likes it for income. Very disciplined and methodical acquisitions. Global platform:  Canada, US, and Europe. Recent earnings growth was from US side, and this will likely continue due to demand and to weak CAD. Above his buy price, so just wait a bit. Yield is 4.7%.

Unspecified

He owns both this and Manulife. Rates going up have helped a lot. They are working on improving the U.S. side which wasn't going well. The Canadian side is doing well.

TOP PICK

An insurer, holding long-term assets that are not exposed much to market volatility. Their dividend grows 8% annually, not paying almost 5%. Gives you income and safety. Lots of cash flow.

(Analysts’ price target is $55.05)
WEAK BUY

He owns POW instead, but you could own this one as well.

BUY

Likes its acquisition strategy, as it feeds into the growth profile.

WATCH

Growing very decisively. Done extremely well. A good way to get exposure to this is via POW.

BUY

His favourite in the space. Nice yield. Growing in mature markets in Europe, generates reasonable returns. Very disciplined. Reasonable valuation.