Manulife Financial (MFC.TO)

(A Top Pick June 18/15. Down 21.22%.) This has been disappointing, because operationally they did exactly what he thought, but their energy book has really hurt them. Have been up about 12%, and he models that they continue to grow 12% over the next couple of years operationally. They have dividend growth and he continues to see it growing at 11% annually with a 42% payout ratio. Very cheap relative to its peers. Still a Hold.

This would benefit from higher interest rates. Of the 3 biggest Canadian lifecos, this is his least favourite. Thinks the management and its assets is the weakest of the 3. His preferred choice is Sun Life (SLF-T) followed by Great West Life (GWO-T). If you own this he would switch into Sun Life.

Insurance businesses are not expensive stocks, and they certainly pay very strong yields. The tough issue is with lower rates. These companies have a very, very difficult time. This company not only has a good asset management business, but has grown a very strong franchise in Asia, which is a strong growth area for them. However, he doesn’t see where growth comes from and doesn’t think they can change dramatically in this low rate environment over the next little while.

This has been under a little pressure over the last few weeks after a nice rally off the lows in February. A concern for the life sector is, what is going on with interest rates. There is $10 trillion or more of sovereign debt that now pays a negative yield. A lot of the returns that insurance companies get to pay their obligations, comes from buying and holding sovereign debt. When interest rates are very low, it makes it hard for them to generate the kind of return they need to meet their obligations. As a company, it is doing a great job and growing in multiple markets, but right now it is being negatively impacted by a little cloud over the insurance group. Prefers something that would benefit in the current environment.

Generally, most people think it is very attractive and the analysts are very positive on it. Has got its house in order and is a good company, but he is trying to avoid financials in general. There have been pressures with all financials for a week or so now, because of the possibility of Britain exiting the euro zone (BREXIT). Even if we get through this, the Italians and the Spaniards will be going to the polls as well this year.

Flat lined since they reported a $Billion in profits. One of the great blue chips in Canada. It is in all portfolios so they don’t need to buy more. More than 50% held by institutions. The big drive is in things like gold so you have to be patient with it.

This has been an underperformer versus the other insurance companies. The surprise this year is that they took a hit on their energy portfolio, that was some credit problems as well as an equity investment. Trading at BV and about 9.5X earnings. Inexpensive versus its peers. The longer-term outlook is that the traditional insurance business in North America is growing, and would grow a lot faster if interest rates went up. Has a good wealth management business that is growing. Also, have Asia which is a real attraction. Dividend yield of 3.39%.

They surprised him with the exposure that they had to energy. That has really driven them down so far this year. They have a pretty good capital position. Asia is still a big lever for them. He is lukewarm on the name.

Doing fine on the life insurance side, but by offering annuities at 3%-4% and can’t make that kind of return, then obviously the business is not going to grow. Insurance companies need interest rates to rise. He prefers Chubb (CB-N) which, on a BV basis, is growing at roughly 10% a year despite all the competition, because they are very good underwriters and efficient at what they do. It has also helped them raise their dividends at 10% per year.

Banks have recovered from 2009 but not MFC-T. There is still no recovery in sight. It is trading at book value. Their Asia business is on fire, but it is too difficult for him to analyze so he does not own it. Stick with Canadian banks.

This is cheaper than most of the banks, and probably has more growth. They got hit recently on write-downs in their credit book. The interesting thing is that if energy improves, we might actually see write-ups in the same portfolio. Trading at basically BV. PE is around 10X, cheap relative to what their profile could be. Momentum has been improving. Ultimately it should benefit from a rising rate environment. Dividend yield of 3.92%.

From March through to about the beginning of June is a good period of seasonal strength. We are just coming off the tail end of it. Average gain during that time is about 8%. There is another period of seasonal strength between October and the end of the year. Technically there was horizontal resistance at about $19, and it is touching that now and trying to consolidate above its previous resistance.

One of his favourite companies. A high-quality company. Since the financial crisis, this company has de-risked itself, changed its product mix, has less of a strain on new business and expanded into Asia in a fairly substantial way. If you can buy this under $20, you are going to do well over the next few years.

This has been stuck at around $20-$21 for quite some time. A rate hike would help. He is guessing that the banks and the lifecos could have a good run here if the market holds. Wouldn’t put more money into this until it got to the $21 range. This is probably going to stay range bound for a while.

(A Top Pick Sept 11/15. Down 1.31%.) This should do very well, being correlated with any rate increase. Price to book, this is the cheapest one out there.