Manulife Financial (MFC.TO)

He doesn't know what the odds are of MFC winning this lawsuit that a hedge fund has trumpeted, but the case is a huge cloud. Rising interest rates will benefit all insurance companies whose stock prices haven't moved much but are paying fat dividend yields. MFC pays a 4.2% dividend. Maybe MFC isn't his top idea in this sector, but the problem with all the insurance companies is that they have so many policies with many many details--it's opaque, so what do they mean? And this has led to this lawsuit.

It's been hammered because of this lawsuit and report by a short-seller. Normally this would be a buy based on valuation. There's a tiny chance that MFC will lose this case. That said, he'll wait for the decision before buying this. The judgement may pass in late-2018 or early-2019.

It's a little scary because it involves a lawsuit, which MFC considers unfounded. Anything can happen at a trial. But he feels that case law and common sense clearly support MFC. The good news it that they will clear their shorts. The lawsuit and short report have hid the fact that MFC has been showing better consistency. He see 9% share and dividend growth trading 7.2x earnings. If you own a lot of this, don't add to be safe. If you don't, yes you can buy it. He believes Manulife will clear this hurdle.

MFC has often been his top pick. For lifecos operating in the U.S. there are accouting issues between Canada and America in how they account for reserves. There is embedded value in MFC's long-term care assets that aren't reflected in the stock price. Now is a buying opportunity. He expects their next report to be fine.

Sometimes people run for cover when there's a short-seller. In this case, the short-seller has picked up on a lawsuit over a 20-year-old insurance policy which he thinks doesn't have merit. The market has sold first and asked questions
later. After the pullback, the stock has regained 15% and has created a great entry point now. Trading at 1x book value, deeply discounted. 12% ROE, so profitability is solid. Geographically diverse between Canada-U.S.-Asia. Their
welath and asset management division is their golden child, growing nicely. The only weakness is their US legacy business, but they're cleaning it up. The stock should be much higher. (4.36% dividend, Analysts Price Target $29.59)

It's hard making money owning it. He's not sure why Canadians keep banging their head buying MFC, when you can buy the Canadian banks. He has no specific criticism about MFC, and in fact MFC is doing a lot of things right, like
moving more into wealth management and performing well in Asia, while diversifying away from insurance. But there's a disconnect in what they're doing and the share price, which has been ongoing.