Great West Lifeco (GWO.TO)

A world-class insurance company with great assets, suffering from high interest rates. This is financially bulletproof and your dividend is secure.

Not an expensive stock from a valuation perspective. It survived the 2008 downturn, and has done a better job than some other insurers. However, this is going to have a difficult time going much higher. 4.1% dividend yield.

Negative interest rates leaking into North America will hurt insurance companies more than anyone else. Best case scenario you are in a range. You could add at the low end of the range, but negative interest rates leaking in from Europe are a big risk.

A well-managed insurance company, and has always had a relatively high ROE, but generally speaking it has been one of the lifecos where you have had to pay up for that return on equity. This is selling at 1.8X Book, compared to Manulife (MFC-T) at 1X Book and Sun Life (SLF-T) at 1.5X. He feels you are paying too much for this additional ROE.

A Fixed Perpetual Preferred. In this environment, you are probably all right with something like this. It’s an awfully good coupon. The Rate Reset has problems with being reset potentially lower. As an equity, it is kind of middle of the pack of the insurance companies in Canada. Not bad, but it struggles because of some of its assets mainly.

It is a strong brand. He prefers SLF-T and MFC-T, although owns neither. They take in premiums and invest them in fixed income. It is difficult for them to see a reasonable return on their cash. There are easier ways to make money in the market. He prefers Canadian Banks.

Great West Life (GWO-T), Manulife (MFC-T) or Sun Life (SLF-T) for the best upside? That’s a tough question, because he likes all 3. Insurance companies will do well in the economy he sees going forward. Lifecos have a little bit more torque on the upside with rising interest rates. Right now Manulife would be his favourite.

(A Top Pick Sept 23/14. Up 6.37%.) If interest rates go up, he expects the stock to do even better. Still likes the stock as it is cheap.

They have done a great job. They are rock solid and pay a decent dividend. It is a well managed business. It is owned by a dual class share structured company. He doesn’t like this. The other lifecos in Canada also have much better global operations.

Of the 3 Canadian lifecos, it is probably the slowest growth. Rather than looking at this company, he would be more inclined to look at Power Financial which holds this, along with IGM (IGM-T) and others.

The stock is getting quite cheap on a comparative basis and has quite a good upside potential. He is going with the value stock in this sector. This is a laggard.

They own a big asset manager in the US which they struggled with, but now look like they are turning it around. Also, have Irish Life in Ireland which is looking better. He prefers to get his exposure through Power Corp. (POW-T), which he expects will start increasing their dividend.

Excellent upside potential. Fairly close to good, solid technical support at about $30-$31. Nice rising balance sheet. This is a play on the potential for rising interest rates. Yield of 3.76%.

It has a lot of protection from its yield. Likes lifecos in general. If we are going to see interest rates ratchet up then insurance companies will benefit. GWO-T itself is supported more by its yield than anything else and he prefers MFC-T or SLF-T. GWO-T looks expensive to him right now.

Likes the life insurance area in Canada better than the bank area because their interest-rate sensitivity is greater. When interest rates go up, they are huge beneficiaries. Also, feels they have much greater earnings growth potential. Banks have some pretty big headwinds. This lifeco is a little bit different because it recently bought Irish Life, which exposes it more to the European market. There is some confusion here, but this weekend Britain came out with some new standards as far as annuities go in England and they are a big player in that. He has seen some research reports that go both ways that it is either positive or negative for them and he is not quite sure what the answer is.