Manulife Financial (MFC.TO)

The last earnings report was quite a disappointment. He has been neutral to negative on this company for some time. They keep missing their objectives and did some write-downs. One concern is that a lot of their growth has come out of Asia, particularly China, and the situation there is a bit murky. Prefers Sun Life (SLF-T) or the banks. (See Top Picks.)

This is a tough call. If you are bent on owning an insurance company, this is probably one of the better ones. Have good assets, a good insurance book and good exposure to equity markets. They lowered their risk profile from 2008. Also, relatively cheap. The bigger concern is whether you should own an insurance company or not. They are heavily leveraged to the interest rate cycle, and every year we have said interest rates have got to go up, but instead they have come down. It’s a slow growth economy, so there is no need for higher interest rates. You are better off with Canadian banks which are cheaper.

Sun Life (SLF-T) or Manulife (MFC-T)? A hard choice. He owns Power Financial (POW-T) which owns Great West Life (GWO-T), because he likes the additional assets they have. There is a bit of a feeling that the insurers may be a better deal than banks with the banks having to shore up their loan loss provisions. Would probably rank this as a tie between the 2.

He has watched it for a long time. Over the last three years the insurance businesses had one more point in multiple than banks. The multiple is now below the banks and below 0.8 times book value. Headwinds are priced into it now. They will benefit from the US economy.

Long-term Hold? Thinks most financials in Canada are fine longer term. The question is, what is going to happen in the next 6-12 months. This is quite a bit from its highs. In the near term you are really going to have to look at where interest rates are going in Canada. He would choose Sun Life (SLF-T) over this.

In the doghouse having taken hits from the decline in energy prices, a lack of a rise in interest rates, as well as the volatility in equity markets. It would be nice for them if all 3 were improving, which he thinks they will. Wealth management and insurance are booming in both Canada and the far east. The US is more difficult, but they are working on that.

Safe dividends? In his opinion, financial dividends are all safe. Banks have never cut them ever, and he does not foresee this company cutting theirs. This is a stock that got pretty toppy at around $20. Had a great run to there, and now we are looking for levels of some sort that we could hold onto.

Prefers P&C insurance companies. Lifecos have a challenge with low interest rates. He likes to see the share price reflecting that things are improving within the company.

Trading at about 8X forward earnings and has the biggest discount to BV that he has seen since the financial crisis. Core earnings are still growing. Asian/international exposure is great. Their US business is growing. Valuation is the cheapest he has seen in a number of years. A screaming buy.

He has constantly wrestled with it. He has looked at it a half a dozen times. Over the last two years it has done nothing. This is an entry point because we have had false starts. He would aim toward Canadian banks. He prefers SLF-T. The presence of MFC-T in Asia has not monetized itself.

Whether looking at this, a US insurance company, US bank or Canadian bank, the financial sector has declined almost in lockstep with the decline of US 10 year bonds. That tells you that people are going to these things when they are more optimistic about rising rates. This company funds their liabilities through their assets, and their liabilities tend to go down when rates go up. Have hedged a lot of the interest rate exposure. The other concern is their Asian exposure. He would almost rather own a Canadian bank because their businesses are little more diverse insulating you from just one product line. Dividend yield of 3.9%.

GWO-T is worth considering also. Life Companies. They are big beneficiaries if and when interest rates go up. Future liabilities are discounted more in an increasing interest rate environment. He prefers Great West Life.

Sun Life (SLF-T) or Manulife (MFC-T)? Prefers Sun Life. This company has done very well in the last little while, tidying up their financials and getting themselves out from under the equity problem they had. A problem he has is their emphasis on China and the far East.

Sun Life (SLF-T) or Manulife (MFC-T)? Both are great institutions. This one has a slightly bigger presence in Asia, which he likes, as it is a very immature market and will continue to grow. They each have good wealth management franchises. This one has had some redemptions on the institutional side, so there is a slight preference for this. Both are good companies and over time you will see dividend growth from both. Dividend yield of about 3.6%.

Good insurance operations in Canada and the US that throw off cash flow. They are fairly mature in the business, so it is what they do with that cash flow. It is going to expand their wealth management arm, a higher margin business, as well as investing in Asia. Asia is the biggest growth market for insurance companies. Insurance companies would benefit the most if interest rates went up.