Manulife Financial (MFC.TO)

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.

He is not keen on this, simply because they have too much emphasis in the Far East. In the last few years, they have missed a lot of their forecasts. Things have popped out that management didn’t warn you about. This wouldn’t be his 1^st choice.

Like a lot of lifecos, this is one of the few ways that you can actually buy a stock that has some possibility of doing well if interest rates go higher. If there is any way that the Fed can figure out how to raise rates in December, they are going to. Another way to play this whole sector a little bit safer, is through Power Financial (PWF-T).

It is an international company and has already been dinged badly from negative interest rates. The business models of insurance companies are coming under severe stress. Prefers US banks.

(A Top Pick Nov 5/15. Down 10.79%.) Bought this for a highly visible EPS growth, high dividend growth and a lower Cdn$ because they have some operations outside of Canada. All of this transpired. Unfortunately, their energy book brought down their book value per share. Also, low interest rate hurt the whole sector. He still models an 11% EPS growth, each year, for the next couple of years, and an 11% dividend growth. Trading at 10.2 versus its peers at 11. The whole lifecos sector is cheaper than the banks. This name can still work.

Too many people are impatient with stocks, so you should go back to basics and ask why did you originally Buy the company. Does your original rationale still stand up? It pays a reasonable dividend. When interest rates go up, which he believes they will, insurance companies should do better.

In a low interest rate environment, it is very difficult for lifecos to make money. Auditors at some point are going to look at the reinvestment rate required, and there is speculation they may actually lower it, meaning the company has to hold more cash on its balance sheet. However, the franchise value is excellent. Great wealth management business. Growing hand over fist in Asia. If they can just overcome the negative sentiment as it pertains to interest rates and maybe start to take a longer term time horizon into 2017-2018, then you can make a case for it.

(Market Call Minute) They are all having difficulty, but MFC-T’s wealth management business is better than SLF-T’s.