Manulife Financial (MFC.TO)

It is incredibly cheap and has been looking at it the last few weeks. There was a short report out this week saying that there was this legacy litigation issue that was not properly disclosed. The bigger problem for them is they have a number of legacy businesses that are lower return on equity that they have to rotate out of. Nothing fundamentally wrong with it.

He has long owned this. He expects good Asian earnings and that they will hike the dividend. Even the short-seller Muddy Waters says the court case (that they've written about) is a binary issue and MW could lose in the end. MFC has been doing this a long time, and hopes the management will pull through.

Muddy Waters has beaten us up before, but when the short report came out, he sold MFC and bought SLF-T instead. He doesn't know if MFC will win or lose this case. Until then, Muddy Waters has put a cloud over this stock. Also, the
court case could get appealed and drag on.

(A Top Pick October 5/17 Down 17%) This was his pick for a rising interest rate environment. A lawsuit is pending to allow an investor to allow unlimited funds into an income investment, which would create severe losses and impact the balance sheet. So far the company is ignoring the investor suit. He interviewed management recently and they intend to vigorously defend their position. He is going to stick with it.

8.5 times PE with 8% growth in earnings next year. In a rising interest rate environment these companies tend to do well. He has not owned it in 4 years and does not own it.

Short-seller Muddy Waters is about a specific legal case in progress. Strong franchise in Asia, but what's hurting them is their John Hancock franchise in the U.S. with a low ROE. Have a strong asset management business. MFC must deal with Hancock--can't sell it but must improve ROE. Management is slowly doing that. Now is a good buying opportunity with a good yield. Could take time.

She has no more info about the Muddy Waters short report. Muddy is betting on the outcome of this trial. See what happens. It could drag on for years with appeals. She likes the new CEO who has segmented their legacy products, and likes their positioning in China. It's now trading close to book value.

The short is questionable, but he’s been right in the past. He’s never been enthusiastic on the name, as they always come up with unpleasant surprises, so he’s always gone with Sun Life. Rising interest rates will be positive, but the transition periods are always tricky.

He stood back and watched for the last number of years. A company is battling to deposit unlimited amounts with them at 4%.

A short report from Muddy Waters came out today. He's always liked MFC. Universal life policies and the way they were funded is what got them in trouble in 2008. He thought they'd walked away from this problem, and now he is not 100% sure they have. He needs to read this short report closely. Don't short or sell it, but he expects this to underperform for a while.

They have gotten caught up in the slowing Chinese market. At the current valuation, the stock is at a good level to buy. He would average down. He expects once there is greater certainty with trade in China there will be good upside to this blue chip stock.

A core holding. Shares haven't done much over the past two years. Rising interest rates will kick some life into insurance stocks. MFC needs to sort out its John Hancock division in the U.S. Its Asian franchise is the crown jewel, though, so as this franchise grows, so will this stock. MFC has a strong presence in Asia where insurance is not saturated like it is in North America.

Responding to a caller who argued that the company’s financials are strong and asked why it is not selling for $30. Steinberg responded that it is a mistake to evaluate this company on its own. Globally, the financial services sector is under pressure. Global banks are under pressure. European insurers are trading at single-digit multiples. For a value investor, these are opportunities to step into good companies at fairly low earnings multiples. Manulife is well-run, has a healthy level of international business, and pays a good dividend. He expects dividend growth. Rather than being frustrated with companies like this, value investors step in and buy them.

It's gone nowhere in the last year, but up 25% in the past five. Earnings growth is good. New management's focus is on wealth management and Asia. Yes, John Hancock is a legacy they continue to deal with, but MFC's operational side is doing fairly well and its Asian operations are gangbusters, showing impressive growth.

(A Top Pick Sept 28/17, Down 5%) It’s still cheap. Trades at 8.3x, with growth rate of 8%, dividend growing at 8%. Improving policyholder efficiency. Consistent performance will eventually narrow the discount. Still has $6-8 north of here. Won’t hurt you if you approach it right.