Manulife Financial (MFC.TO)

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.

They’ve had a hard time reporting good numbers, so until she sees 2 or 3 good quarters, she is sitting on the sidelines.

Thinks this is going back to the $20 range, kind of back to its BV. All financials have been under pressure for the last couple of years, except for Canadian banks. This is really a function of the low interest rate environment. If this gets back to $20, he thinks it will then pause again. Feels management strategy has been a little bit confusing to the Street. If you can buy it below BV, you have downside protection, which is why you buy it at $17-$18-$19. The upside now is really a $1, and then we have to see what the next 12 months on interest rates bring. This would not be his favourite financial right now.

He sees yields coming up. This will be a beneficiary of rates coming up. He owns a US bank and this one as well. It is net down and they raised the dividend around a year ago and they have a lot of growth in Asia. They should do well with rate increases. He can see 15% on it. They do a pretty good job of knowing that people can’t; People now understand their financial statements.

They need rising interest rates and a stock market that cooperates. They are well run. He likes SLF-T a little better. They are running into resistance at $19.80 and if it gets above that then there is room to move. It may participate in a good run next year.

As the yield curve steepens at the latter end, the insurers will probably fare pretty well. A good company with a good dividend of 3.79%. This has underperformed the banks. Once it got to the $19 level, it showed that it was working its way into an uptrend. Thinks it can get into the $22-$25 range.

Manulife or Canadian Banks? He tends to favour US banks right now. This is a well-run company, and is poised to benefit from a rising interest rate environment, and maybe even more so than the Canadian banks. The concern he has with Canadian banks are the ongoing changes in the mortgage industry and the secondary effects on the overall housing market.

He likes this a lot. Their Asian business is growing, but the profitability is not growing as fast. They have to clean up their act in the oil/gas securities, which they own, and have to get rid of some of the less well performing assets in the US. They are growing their wealth asset business very well.

(Market Call Minute.) You want to have some inversely correlated assets when rates go up. This is your best example.

It has done quite well in the past month or so. There were problems in the past with energy loans. There has been a change in sentiment regarding the energy component of their loan portfolio. With rates likely going up in December and possibly Canada following, it will be a tailwind for lifecos. You could wait for a pullback, but you could still buy it here. She likes their operations in Asia.

He likes it going forward because he thinks we have to see rising interest rates coming. He likes what they have does in the core business. He thinks it will be okay in the long term, but in limbo right now.