Manulife Financial (MFC.TO)

$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.

MFC vs. SLF-T (Market Call Minute) MFC-T is her preferred because it is at a lower multiple. They can improve their ROE and garner a higher multiple.

A very well-run business, particularly after a number of years of underperformance relative to the banks. Lifecos are poised to outperform the Canadian banks as they have a lot of sensitivity to rising interest rates. If you believe we are in a period of reflation and rising interest rates, lifecos are a great way to play that. Also, this company has a great, global footprint.

Canada’s largest life insurer. He likes this for the geographic balance, operating in Canada, the US and a large and growing presence in Asia. They are quite profitable. He sees a clear path to improving returns on shareholders’ equity, which is very highly correlated with the valuation multiple that investors are willing to put on the stock. Their reinvestment prospects will get better and better as interest rates go up. There is still more room to run with this company.

He was adding to his positions at the $17 level. Now the question is, how fast do interest rates rise, how far do the rise, and how much does it help them. On their most recent quarter, their core earnings beat estimates and were better than expected, but their headline earnings were $.01, because they lost a lot of money on hedging and interest rates. That is short term. He likes this for the long-term, but would be looking for a better entry point in the low $20s. 3.3% dividend yield.

Lifecos? He owns Sun Life (SLF-T) and Manulife (MFC-T). The problem with life insurance companies, especially when interest rates are getting so low and negative, how do you fund long-term liability? That has been a conundrum. When there started to be a turn in interest rates, suddenly lifecos became more interesting investments, and he added to his holdings. Because of the big move, he has taken a bit of money out recently. He likes their growth, but valuations are at the higher end and expectations of higher interest rates are a little too bullish. He would recommend that you take some profits like he did.