Metlife (MET)

Doesn’t think the stock will go below $49 and the 200 day moving average.

(A Top Pick July 29/13. Up 11.67%.) This should have done a whole lot better, but has been mired by regulatory concerns. Feels the US government will be labelling this as “too big to fail”, so capital, leverage and liquidity will be constrained. He would be using this fear as a way to be buying this. Still a Buy.

The thought is, if you buy lifcos now, and interest rates go up, they’ll make more on their bonds, then they will reap profits and you’ll be rewarded. The problem is, nobody knows when that is going to happen. This is not a bad bet.

Fairly cheap and cheaper than all the Canadian financials. Has lots of capital, and pays a nice dividend. Has an excess of capital because they are not sure what is going to happen in the regulatory environment. If they are put in a situation where they can keep less capital, they will definitely be increasing dividend and buying back shares. Also, trades at a much cheaper multiple than the Canadian lifecos.

Lifecos do better in rising interest rates, and the consensus seems to be that this is going to happen. The 10 year in the US is hovering around 250 right now, and should back up towards 3, if growth in the 2^nd half of the year is going to be as expected. The problem is, we keep missing on the economic numbers. The insurance companies have had an awful good run, so this may not be a good time to step in.

When looking at insurers, a key question is, do you think rates are going higher or lower? Certainly higher long-term rates are good for insurance companies. Secondly, many of them are focused in the wealth management side of things. He would guess that if he had to pick a direction, rates will work a little higher, but he doesn’t expect this will give a huge tailwind. His focus in financials has been more specifically in pure asset managers. This would be his 1^st choice. You get great quality under something like Sun Life (SLF-T). On this company, you probably get an industry return. It has a 2+ percent return.

(A Top Pick April 2/13. Up 40.43%.) Had felt management would continue doing a good job in de-risking the business, which they did. Also, did some acquisitions in Latin America, which somewhat improves the growth profile. Really attractive share price. Will do about $5.60 in earnings this year and well north of $6 next year. If medium and long-term interest rates do rise at some point, the stock will be exceptionally well-placed. ROE is north of 10%, even in an incredibly adverse interest rate environment.

Life insurance companies generally are not very profitable according to Warren Buffett. ROE on this one, over the last 10 years, averaged about 9%. Look elsewhere.

The good news is that this has been going sideways when most of the financials have been going down. Pays a dividend of 2.74%.

All the US lifecos face the same issues i.e. are they too big to fail. US banks have a lot of regulatory issues to deal with and he thinks this is going to move into the insurance business as well. If you want to be in this sector, this is a better company, and they have the ability to increase dividends, and to buy back a lot of stock.

A good story. He likes the whole insurance category. For Canadian investors, the Canadian ones offer better dividends. MFC or SLF. But you are fine to hold this one.

His model price is $74, a 36% upside. In the financials, you have to be patient with them, but they are in merging out of the financial crisis and the market is giving their A-OK in the sense of beginning to like what is on their balance sheet. Yield of 2.03%.

Replace this with American International Group (AIG-N)? The whole area of property/casualty insurance represents good value. Why not own both? Why not split your Met Life position into 2 and buy a position in AIG. Gives you a little bit of diversification.

Likes life insurers in general. Fundamentals in the business have improved and have recovered a significant amount from where they were 2 years ago. At this level, the stock is probably just going to go sideways.

Likes life insurance companies but he has chosen to own Canadian ones. US companies trade at a slightly better valuation and are cheaper than Canadians. A good name if you want US exposure in this area.