Manulife Financial (MFC.TO)

(A Top Pick Feb 16/16. Up 53.83%.) A year ago, people were looking at negative interest rates, which was a disaster scenario for the lifecos. He still likes the growth story here.

Short term MFC-T with more increases in interest rates, deserves to be at $34.38, with his model price at $34.58.

All insurance companies do better in a rising interest rate environment. They also do very much better if they are selling equity type products, which they all do. Any increase in North American equity markets is good for the companies. He feels this company has too much of their future growth tied up in Asia, and he doesn’t trust the Asian markets. (See Top Picks.)

He still likes it. Interest rates are going to go higher especially with infrastructure. He likes that it got hurt in the financial meltdown. There is room for dividend growth and upside from the trend of rising interest rates. He wants it in addition to banks. (Analysts’ target: $26.61).

As interest rates have moved up, it has been helpful in lifting this stock. Rising interest rates will be a feature in the medium to longer term, but in the short term, REITs have gone about as far as they can go.

Ran into serious problems during the financial crisis and had to cut the dividend in half. They had to restructure, not only their balance sheet, but also their product line. They’ve made huge inroads expanding geographically. Although it has appreciated recently, it is a company that will appreciate very well in a rising interest rate environment. Has a very strong operations in the US. Their sales in Asia have been doing extremely well. Believes we are going to be seeing more dividend increases, probably in the near term. Dividend Yield of 2.96%. (Analysts’ price target is $26.61.)

He likes the look of this. Insurance companies have all had a big move post election, on the premise that we are going to see increased rates. They’ll be big benefactors of that. A dividend increase is a very likely possibility. It’ll be modest and not likely as large a magnitude as the past 3 years. Valuations are very reasonable. Dividend yield is 3%, which is certainly adequate to hold in this environment. This and Sun Life (SLF-T) have the biggest exposure to international markets, which is going to be a key to them.

The chart shows this recently completed a base pattern, and then started moving higher. It is now testing its all-time high, so technically it looks very, very good. This looks like a winner.

This is really growing well in Asia. He models a 12% EPS. Last quarter was a beat. 9% dividend growth. Still trading below its peers. Trading at 13.1X 2016, which isn’t bad relative to the TSX. Very strong balance sheet. They benefit from really good FX tailwinds to the Cdn$. They’ve taken some recent actuarial charges against their long-term care unit, which should make their quarters quieter going forward. This is an interest rate play, so as interest rates start to go higher, they should benefit. Dividend yield of 3.04%. (Analysts’ price target is $25.83.)

Manulife (MFC-T) or Sun Life (SLF-T)? As interest rates started going up, they have done well in the last little while. To him, Sun Life is a much more stable company. This company has a really great Asian franchise which can drive their business a lot more than Sun Life’s.

(Top Pick Feb 25/16, Up 42.24%) He does not expect this kind of run in this time frame, but he looks for undervalued opportunities. MFC-T was unique in that they had a rough quarter and yet still increased their dividend. Rising interest rates and a steeper yield curve really benefitted them.

The 35-year run in the bond market is drawing to a close. All insurers are very heavily exposed on their balance sheets and through their general funds to fixed income securities. Whether mortgages, publicly traded bonds, private loans, etc. They’ve managed to claw and scratch and make money in a very repressive interest rate environment for many years. With rates backing up, it should be a tremendous boon to profitability. Trading at 1.25X BV so it is not expensive. Dividend yield of 2.97%. (Analysts’ price target is $24.92.)

This looks like it has decent earnings growth into 2017 off of 2016. It has had a big run with the Trump rally, but remember all these life insurance companies fare a lot better in a rate environment where rates aren’t at zero and the curve isn’t flat. It should continue to do better here. There is nothing wrong with this company.

It has a strong correlation to interest rates and equity market returns. In the near term you could see headwinds from toppy equity markets. It is not the sort of thing he would own.

$34.34 is the model price, a 41% increase from here. It will go substantially higher if interest rates go higher and it is lagging SLF-T right now.