Manulife Financial (MFC.TO)

(A Top Pick Dec 7/16, Up 12%) The macro environment benefited it. They have a strong wealth management franchise which is growing market share. They have a very strong and rapidly growing Asian business. Their new CEO is a strong leader.

They are going to overcome the problems they had in the Power Financial crisis. A new CEO is coming in. She likes their positioning in Asia, a faster growth market. They seem to have worked through some of the legacy US problems they inherited with some of their acquisitions. She doesn’t see them exiting their John Hancock US position totally. Dividend yield of 3.2%.

He likes this and it is one of the few financials he owns. They have a better growth profile than a lot of domestic Canadian financials because of their international holdings. They’ve done a great restructuring in the past couple of years. On top of that, rising interest rates benefit the lifecos.

(A Top Pick Dec 1/16. Up 11.25%.) Still an excellent company and still statistically very cheap. It would have benefited from rising interest rates. As a global company, it is growing quite nicely. Dividend yield of 3.2%.

Given his market outlook, there are certain stocks that are safe to hold, and if they do get set back, they will bounce back quickly when the market comes back. Dividend yield of 3.2%. (Analysts’ price target is $28.)

From now until the first week in January it is seasonally strong. It has been trying to form an upward trend. He believes we will break the current trading range to the upside.

Seasonally, between Dec 10 and April 3 is the optimal time to buy this. During that time, you have accumulated an average return of about 3% above the benchmark rate. It has been positive in 13 of the past 17 periods. Technically, it is holding support at the longer-term moving average. In the last couple of days, financials have broken out. (See Top Picks.)

A play on wealth management and a play on slightly higher rates. Lifecos in Canada are pretty cheap. They are getting smoother performance in Q2, which gives the whole sector higher valuations. This is still one of the cheapest. In Q2 they were up a solid 42%. They are showing better operating consistency. Their Asian business was up 18%. There wealth management inflows where $5.6 billion. He models 8% EPS. Dividend yield of 3.2%. (Analysts’ price target is $28.)

Likes their Asian franchise, a really great group business. Feels the John Hancock business takes up a lot of capital, and doesn’t have a very high Return on Equity. They need to exit that. If they can do so, they can really concentrate on the other strong businesses they have.

When you buy an insurance company you are buying a giant investment portfolio. He is very constructive on the world’s economic condition. He believes we have likely seen the generational lows in interest rates. Over 15 to 20 years we will likely see interest rates rise. MFC-T has done a good job of building a strong franchise in Asia. He likes the sector. They are under owned. Their legal issue is in the price and is not likely to recur tomorrow.

The best in class in Canada. There are always 2 components with the insurance companies, insurance and investments. A rising rate environment should be beneficial over the longer-term. Product sales are good. They are branching out into Asia. It has been well-managed.

Stay with Manulife (MFC-T) or go with Toronto Dominion (TD-T)? Currently prefers banks to the lifecos. Of the 2 major Canadian lifecos, he prefers Sun Life (SLF-T), which has more consistent earnings growth ahead of them. Manulife has just changed CEOs, and thinks the street will wait to look at the execution and changes in strategy in the next while.

They had to spend so much money to get capital ratios on side, and now they have the ability to grow. They were thinking about spinning off John Hancock, but believes they have decided not to. There is too much in earnings coming from that. Asia is doing incredibly well for them. Their investment gains have really helped. You want to buy this when it is really cheap, because there is compression going on in fees. There are transparency issues with their products. Dividend is about 3.5%.

MFC-T vs. The Banks. If you go back over the last 10 to 15 years you will find that the worst Canadian bank has done better than the best performing lifeco. This has been the poorest performer of the lifecos. The outlook appears to be for this to continue. The low interest rates are hard on them and they don’t benefit when rates go back up because then the lifecos lose value on their bond portfolio. It is a commoditized industry also. John Hancock is one of their better performing units and they are looking at divesting it. The banks are a better place to be.

Canada is an amazing company to live in, and we are all grateful to be here, but Canada has very few great world-class businesses, outside of our financial service sector. Warren Buffett would say to own the best companies you can find, no matter where they are. He likes this company. They will benefit from rising interest rates. They are in perfectly sound financial shape. Have done an amazing job in Asia, and will possibly spin off some US operations in the future. If they do, they are going to get paid a very good price for it.