Manulife Financial (MFC.TO)

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.

Made $1 billion a quarter for the last 5 quarters. Dividend is about 3.3%. Huge footprint in China. Rising interest rates. Stock price has gone straight down. Why is it not being rewarded for good earnings? You are asking the inexpressible. The value is there. Also, with the latest economic numbers out of Canada suggesting an interest rate hike, that will be very bullish for insurance companies generally. He likes the value in the stock.

Has had a nice move off the 2016 $18 level. Some of that is in tandem with the backup of interest rates. Beyond that though there are the company specific growth opportunities which are pretty good. What he likes most is their Asian division, which is growing by leaps and bounds. Also, their wealth management division is pretty strong. The one drawback is their US operations and they’ve been talking about monetizing that by spinning it off, which could be a potential catalyst for them.

They’ve made a million-dollar profit in the last 5 quarters. Why is it going down? In the shorter term, life insurance businesses are very equity sensitive, and particularly interest rate sensitive. The expectation of rates going up in the future, is one reason you would want to own this. Sometimes there is noise in the results of the lifecos and are complex to interpret. There has been a lot of uncertainty regarding interest rates. A well-run company with a global franchise and significant exposure to Asia, so are well positioned over the long-term. If a long-term investor, this is a good one to hold.

(Top Pick Oct 28/16, Up 31.52%) He still likes it. It is beneficiary of higher rates as well as really good growth in Asia of about 35%. It pulled back from above $25. We will not repeat $31. There may be a dividend increase in 2018. It will be good enough to hold going forward (10% return).

He still likes it. Asia continues to grow and rates will go somewhat higher. The trend will continue and they will keep the multiple. He predicts 10-12% returns.