Manulife Financial (MFC.TO)

(A Top Pick July 29/15. Down 19.79%.) People are a little concerned about its exposure to Asia and the slowdown that is occurring there. At this price you have the ability to buy a well-run insurance company that has de-risked its balance sheet greatly over the last number of years. It has changed its product mix to the extent that it is a lot less market sensitive than it used to be. Trading at less than BV, and is still a Buy.

4.2% dividend. They are really about wealth management. They began as an insurance company. His favourite is SLF-T, but that does not mean you sell your MFC-T. It should continue to do well by virtue of the market doing well, however he thinks you may do a little better in SLF-T.

This has not done well. There are a lot of headwinds in terms of energy loans in their energy bonds. Interest rates not going up is not good for lifecos. It’s a cheap stock. Longer-term, she likes their positioning in Asia, and about a 3^rd of their revenues are from there. This is one you might be open to pick at and build a position in. Pretty cheap now.

On a technical basis it does not look good. It is in a downward trend and has support around the $15 level. Its strength is negative. It is not a good time to own it for a seasonal trade. It does well until April of each year.

By all measures, this is probably cheap, but the problem is that it is very rate sensitive. You really have to believe in interest rates going up or the yield curve steepening. Near its 52 week lows, based on people’s view that rates are not going back up again.

This continues to struggle with very, very low interest rates, and he expects we are going to have low interest rates for a very long period of time. CRM2, the new regulatory environment, is potentially going to put pressure on mutual fund fees. Pricing on their insurance products is under pressure. Expanding into Asian market places, which is a slow, long slog, and not without its risks. At this price you can own it, but it would be a Sell at $18-$19.

Getting beaten up because of the yield curve collapsing, certainly negative in certain countries around the world, and collapsing in the US, with the 10 year touching 1.37, which is incredibly bad. The Government of Canada 10 year is going to go to at least 1%, which will drag this company down with it. He is Short this.

They will benefit when interest rates go up, but it will be 25 basis points at a time. Apart from the US the rest of the world has been taking interest rates down, though. You need to see global interest rates going up. MFCT-T rates in the bottom third in his ranking. He does not see it forming a base, but he is watching it.

Financials do not rate high on a Buy list in these markets. Has pretty much been Short financials since starting his fund 18 months ago. Insurance companies in particular are in a tough bind. With these low rates, putting premiums to work and earning a decent return without a lot of risk, is very tough. This doesn’t have much European business. Asian and wealth management businesses have been great, but offsetting those 2, they have had some issues with energy debt. The good thing is that it is really cheap. If you take an 18-36 month view, you can be okay.

This has exposure to the overall equity market, and people love to play it on the way up, and love to short it on the way down. The expectation for rate hikes is being pushed out right now, so they are out of favour. He would use $13-$14 as a floor and would wait for it to pull back a little.

(A Top Pick June 22/15. Down 28.5%.) He likes companies that have great operations offshore, and the Asian growth for this one has been quite dramatic. Hadn’t thought rates would stay down for as long as they have. With the current drop, he would Buy more.

It is hard for him to get excited about this company. Just when it seems that they are out of the woods, something else happens. The issue for life insurance is the weak Cdn$, low interest rates and that the stock market hasn’t taken off. Trading at 0.9X BV, which would probably be of interest to a deep value investor.

Switch to something better? If you own, stick with it for the time being. Shares are still moving sideways, but starting to inch up. It is still technically below the 200 day moving average, which is not a great long-term signal, but since Feb-April, it is trying to move higher, and he is seeing higher highs and higher lows. A cheap stock at 10X earnings. Dividend yield of 3.95%.

In terms of life insurers, this is arguably one of the best. Under the new CEO, they have separated into 2 focuses, their core business and their investment side. With lifecos, low rates are very detrimental to them and volatility in the stock market is not good. With a company like this, they really need to focus on the core business. A good place to be and a good company.

He owns this because of earnings, valuation, the global diversification, growth, etc. However, it has underperformed. The market concept is that life insurance companies benefit more in a higher or rising interest rate environment. Janet Yellin and Central bankers globally have taken any chance of US rate increases down dramatically. The stock is fine. You go through these hiccups. Thinks it is a better play today than Canadian bank stocks.