Manulife Financial (MFC.TO)

(Market Call Minute.)

We are going into an environment where lifecos start to look attractive again. You are getting into yield spreads that are okay, better equity markets, better economies. Generally, insurance company environments have improved. Has never been a super fan of this company, because in the past there have been a lot of situations where they have come out with earnings and some surprises. Because of this, he has always favoured Sun Life (SLF-T). However, this company has now come out with some really, really good earnings with no bad surprises. However, the stock reacted in about 3 days and went straight up. He thinks it is now fully discounting the good news and is fully priced. Looking a little pricey at these levels.

This is definitely a beneficiary if bond yields go up. They’ve had some lovely earnings. This is basically a global company that happens to be headquartered in Canada. It will be a beneficiary of rising interest rates. Dividend yield of 3.13%. (Analysts’ price target is $24.03.)

Sun Life (SLF-T) or Manulife (MFC-T)? He decided to get into insurance, because rising rates are beneficial to the insurance business. It is very difficult for them to make money when rates fall, but will be a lot easier as rates go up. Feels there is a better multiple expansion on this one.

One of their key assets is their Asian franchise. The growth numbers in Asia are doing quite well for them. Trading at 11X earnings with a nice dividend yield of over 3%, and close to 1.1X Book. The recent run up in the last little while is because of the yield curve steepening. You have to come to terms with the issue if rates going to stay this high and continue to go up over the next several years? Expects you will get a chance to buy this as he expects it to pull back a little.

All insurance companies are benefiting in a huge way from the steepening yield curve. They have all suffered from this very flat yield curve, so this is a huge boon to them, because they all have huge bond portfolios. This company has done a phenomenal job in the Asian/Pacific region. They have used their free cash flow and profits in Canada, to build up a huge presence out there, which has been very successful for them. This and Sun Life (SLF-T) are the 2 best ways to do this in Canada.

The strength in capital markets getting better and a higher rate environment bodes well for these. Let them digest the moves before getting in. He prefers this one over SLF-T.

This is the 1^st time he has selected a Top Pick, which he just sold. Likes this long-term, but it took off and the RSI is up. He likes the name and would buy it back if it just dropped a couple of dollars lower, which it will when things calm down. Interest rates are moving higher and equity markets are steadying, but more importantly they have really done well with their organic growth and have made a very good series of successful acquisitions. They are in the very fast growing part of the world in terms of the insurance market. Over 40% of their revenues are coming from Asia. Trading very cheaply at about 11X forward earnings. Dividend yield of 3.22%. (Analysts’ price target is $23.76.)

This is looking at core earnings of something close to $2 a share by next year. If the interest rate curve normalizes a little, it is a benefit to lifecos. At the same time, they have improved their core operations. They have better growth internationally compared to Sun Life (SLC-T).

(Or MFC-N in the US.) This gets business from 3 different geographic sectors. Canada represents about a 3^rd of their profits, Asia represents about a 3^rd, and the US represents the other 3^rd. This does mainly life insurance sales in all 3 areas. They have tremendous growth in Asia. The company has tremendous free cash flow yield of over 20%. With interest rates going up, they should be able to deploy their free cash flow at higher rates. Dividend yield of 3.54%. (Analysts’ price target is $23.76.)

Had a big move this past week, a combination of several things. Their 3^rd quarter was actually quite good having good growth out of Asia. The headwinds they were facing in energy loans in their investment portfolio has moderated. Also, with rates moving up, higher interest rates are favourable for life insurance companies. They made higher investment income on their portfolios, their surplus and their capital. Currently trading at just over 1X BV, so it is still quite reasonable, and below historical levels. Before buying, she would wait for a bit of a pullback.

Just came out with results today, which were decent. 10 year bonds really do affect lifeco share prices. They have a lot of leverage to interest rates. He owns this and Sun Life (SLF-T), as he likes their wealth management business for the long-term. Increasingly you have a demographic of baby boomers who are going from “saving” to “spending” in retirement, and insurance companies are ideally suited in dealing with that transfer and annuitizing that wealth, even though interest rates are low. He likes that base of their business for the next 20-30 years.

He was short for some time and covered it a few months ago. This is not a bad name to own it. They have a big enough US business that you would benefit from a steepening yield curve in the US.

It is tough. All insurance companies are tough. It has a 49% upside to the model price. If a stock trades below EBV -3, then the balance sheet is impaired. It is straddling the line. A higher rate would be positive for this group. The market is not sure if the FED will go this December with an increase. MFC-T has a chance of going to his model price if rates are increased, otherwise it will g below EBV -3.

A good way to position for a rising interest rate environment. It scores in the top 20%. 4% yield. PE is 15 times.