Manulife Financial (MFC.TO)

All the financials had a big, big move, and this was probably one of the greatest recipients of this bump in Canada. In terms of an overall stock, their valuation is reasonable. It looks like they are putting some improvements in place with the John Hancock business, which has been a huge headache. ROE is still lower than its competitors. (See Top Picks.)

Insurance companies have been predicated upon interest rates going up in the next little while. They’ve made a lot of money on investment sales in the last couple of quarters, and he thinks that is going to be pulling back a little. One of the keys is their Asian business. They have a very strong and developing emerging markets/Asian business, which is what you want to own the stock for over the long-term.

She likes this. All insurance companies will benefit from a rising interest rate environment. In the last few weeks, most insurers and financials have been in a trading zone because there is a question of how fast rates are going to increase, both in the US and Canada. This has good exposure in the US, so will benefit from rising rates. She also likes their positioning in Asia. About 25% of revenues comes from Asia, and it is a faster growth market. Trading at a discount to Sun Life (SLF-T), but going forward that gap is closing because their ROE is growing at a faster pace. They’ve been increasing dividends, and she sees that continuing. Could see this in the high $20 area.

(A Top Pick Oct 26/16. Up 21%.) He sold out of this at around $24.67, and repurchased it again in the last few weeks. This was a play on rising interest rates. He could see this moving into the high $26-$27.

He prefers SLF-T. There should be a pretty good opportunity here to benefit from growth in Asia and in their wealth management businesses. MFC-T lost money on their hedges. Over time they should normalize.

$30 by year end is not impossible. It has everything going for it in terms of EPS growth. It is still cheap relative to the group. Some of Trump’s agenda will get through and this will be simulative of higher interest rates.

He thinks the long-term theme is higher interest rates and better equity markets. Both these things are great for insurance companies. This looks really great. It got a little extended, so it could pull back a couple of more dollars. A great long-term hold.

One of the bigger lifecos in North America, but also has some bigger strengths in Asia, one of the fastest growing areas globally. With interest rates going up in the US, all the lifecos should benefit, this one in particular. There was a lot of noise in the last quarter. Things come together causing short-term pain, but these should pass. Expects they will do quite well in the long-term.

Bank of Montréal (BMO-T) or Manulife (MFC-T)? Doesn’t own either, and prefers some US banks, although many of them are no longer as attractive and he has had to reposition.

This has come up a bit, but is still trading at 10X earnings. He doesn’t own any lifecos. Life insurance is a very commoditized business. Where they are trying to grow is to get into wealth management.

Royal Bank (RY-T) or Manulife (MFC-T)? Royal definitely looks a little better. Manulife is just making a marginal new high. Insurance companies suffer from ultra low interest rates. Higher interest rates still have not materialized.

Manulife (MFC-T) or Sun Life (SLF-T)? He has a long-term bias that favours Sun Life. This just got fined for a couple of misdemeanours. That has been his experience with this company, their unpredictability. This one has had a good run up and feels it is fully priced right now.

This is at an interesting crossroads. If interest rates go up, it could be very positive as they have to reinvest the proceeds now at very low interest rates. Insurance companies are very hard to analyse. Balance sheets are opaque. There are so many moving parts. He prefers Canadian banks to Canadian insurance companies.

Life insurance companies are a classic way to play rising interest rates. This one is well-managed, and he particularly likes the fact that they have got the strong Asian market. He has a price target of $27 over the next year. Reasonable dividend yield of 3.41%. (Analysts’ price target is $27.67.)

SLF-T vs. MFC-T. SLF-T has done well, and then pulled back recently. He would prefer MFC-T. The life insurance companies would be a slight preference over the banks.