Metlife (MET)

He likes the financials in the US. Life insurers are going to benefit the most from rising interest rates and a steepening yield curve. This is the largest US life insurer, and one of the largest financial services companies in the US. A pretty strong global brand, very solid financial balance sheet and a very large distribution network. There is also an easing of the regulatory environment. About 3 months ago, they announced a shareholder friendly $3 billion buyback program. Trading pretty cheap at 10X PE. Dividend yield of 2.95%. (Analysts’ price target is $60.03.)

MET-N vs. PRU-N. They will get a nice tailwind from a steeper rate curve. He prefers MS-N or GS-N to these two.

Has looked at this a lot. He is a large holder of their bonds, and feels he is getting very good rates on those. The last time they reported earnings, the earnings were quite bad. It turns out that they had priced some annuities badly, meaning they gave their customers too good of a deal. He would prefer some other financials. 2.9% dividend yield. (See Top Picks.)

Insurers have all done a little better in the last several months. That whole sector is stronger today with a feeling that a Republican-led Congress, and potentially a Trump led government is going to be easier on banks. There is also a feeling in the US that the DOL rule may be repealed/changed. That was a rule that was definitely affecting a lot of the insurers, in which the US insurers have financial advisors that give out advice, and they were potentially going to be very limited in doing that.

The biggest lifeco in the US. This is going to be a big ROE stock. It will be a beneficiary of rising interest rates, but more importantly, there are 2 things going on. 1.) They’ve announced they are about to spin out the retail insurance business which is very capital intensive. They want to stick to doing group life insurance, annuities, pensions, etc. 2.) They are currently under the watchful eye of the government as a special investment company, and are going to be getting out of this, which will give them more flexibility. Dividend yield of 3.35%.

(A Top Pick Nov 16/15. Down 4.51%.) All the negatives that are associated with the financials generally, also impact life insurance. This is one of the best lifecos out there, but it was dead money for quite some time.

Fundamentally, he is looking for companies that are going to benefit from a rise, or the expectation of one, in interest rates. These kind of companies have all been moving in the expectation of one coming in December.

(A Top Pick Oct13/15. Down 3.64%.) As far as lifecos go, particularly US ones, this is a stand out. Great annuities business, exposure to life insurance in Asia and Latin America. Huge cash reserves. However, this is a financial company and lifecos are kind of challenged. Long-term return assumptions in the marketplace are lower because of lower economic growth as we all age. It is going to be harder for them to have outstanding years. He has dramatically reduced his financial exposure.

A cheap company. A great company and pays a good dividend. They have lots of capital and don’t have to worry about things and they can buy back their shares. Lifecos are up against a very difficult environment from an investment point of view, which is going to keep the stock moving sideways for a lot longer than people think. If you have a 5-10 year view, then buying at these levels makes a lot of sense.

Chart shows a long downtrend with periodic runs up to it. It sort of coincides with what the Fed is going to do. His charts show this is weakening a little and there is some resistance at around $46. If you are a really long term investor, this is probably in the ballpark to buy at some point.

Used to own this. As an insurer, it will do a bit better with rising interest rates, but on a technical basis, it is below the 200 day moving average, and that continues to fall. Be careful of this one. Pretty cheap at 8X forward earnings probably a 9%-10% growth rate, but until it changes in terms of its technicals, he is not going to own it. Nice dividend of 3.6%.

(A Top Pick Dec 4/14. Down 18.89%.) Just sold it in September at around $47 and $48. The stock tends to move with bond yields, and they are not moving higher just yet. Still cheap at 9X forward earnings. If you want more of a stable movement and a 3.4% dividend, this is a good name to own.

MetLife (MET-N) or AIG (AIG-N)? His model price is $66.28, a 32% upside. This looks the better of the two.

(A Top Pick Dec 4/14. Down 6.66%.) Looking at the chart, this stock tends to move around quite a bit. It is undervalued in terms of where it is trading at, 9X forward earnings and a 7% growth rate. Pays a 3% dividend. When 10 year government yields move up, this stock moves up as well.

Rising interest rates should be good for them. So far the market has really not played into this. This scores middle of the pack on all his metrics. He would prefer Manulife (MFC-T).