Manulife Financial (MFC.TO)

Good investment. Just poking above the early highs that were there at the beginning of the year. This needs a stock market that goes up, and they need rates to go up. The markets have been good even though there has not been a rise in rates. This looks like a pretty good place to be.

Stock vs. Stock: MFC-T vs. SLF-T. Owns MFC-T and not SLF-T. MFC’S growth over the next 3 years is higher in each year over SLF-T. MFC-T’s PE ratio is slightly higher. SLF-T is a great company and has been outperforming MFC-T but going forward MFC-T can pick up their business. With their growth rate in Asia and in asset management, they will do particularly well.

Manulife (MFC-T) or Canadian banks? He has both. However, if it came to one or the other, he would be inclined to go with Manulife right now. The bank sector valuation is at a very high level and earnings growth is slowing down. Feels the housing market in Canada is a little bit riskier than it is in the US. This company has done restructuring and have got their balance sheet in better shape.

Doesn't think this is fully valued right now. They have a very, very strong balance sheet. Required capital is 248%, one of the highest in the industry. Since the financial crisis, they have really de-risked their balance sheet to a great extent, changed their sales mix into products that have more predictable profitability, gotten out of a lot of the market sensitive products. Extremely well-managed. Expects you could see upside from here. Wouldn't be surprised to see the dividend increased in the next year or two.

Insurance companies are a good investment. When stock markets or interest rates go up they are a good investment. Markets are going up and interest rates will at some point. At this point it is too expensive for him, but that does not mean it will not go up from here.

New management seems to be focusing on their core results, pretty much selling insurance, and have mandated a pretty good target going forward. In the last quarterly earnings results, he saw some of the equity and investment return come back into that core number, so they are getting a bit blending as to whether they are selling insurance or are they investment gains. Low interest rates is a very big factor in insurance companies.

Your safest bet in lifecos is probably Great West Lifeco (GWO-T), the most stable and diversified, but if you believe that interest rates and the stock market are going higher, this one will give you your best bang for the buck. They are the most exposed to variable annuities.

Both MFC-T and SLF-T benefit from the same trends. Over time rates will rise and benefit their businesses. SLF-T has a stronger balance sheet. SLF-T talked about returning capital in the form of a dividend and share buybacks next year. He would wait until a hint of rates going up.

Now a well run company compared to his past history. One big proxy has always been a rising interest-rate environment. Feels the value proposition, in terms of its growth in Asia and its footprint in a core business environment, looks interesting. Yield of 2.93%.

This is now in a very good space. Trading for 13 or 14 times earnings, but earnings are really poised to jump here. He is looking at earnings going from about $1.55 a share this year to the $2 level in 2 years from now. Also, looking for more dividend increases.

This insurance company versus banks? They have done a good job of moving the company in the right direction. Where insurance companies really make money is in a much higher yield environment. He thinks interest rates are going to stay relatively low for longer than people think, so that really hurts this industry. He would rather put his money in a bank, which has better opportunities.

Likes their Asian position. Asia is still growing at a pretty fast clip and is not a concern to him. Prefers Sun Life (SLF-T) which can do a little bit more with their capital.

Banks or Insurers? He thinks he would lean more towards lifecos at this point on a longer-term basis. There is a little bit of risk on this one short-term, which is why there was a selloff. There is still real leverage within the portfolio regarding higher interest rates and stronger stocks. There might be a little bit of earnings risk on this so he wouldn’t put all of your money in.

He likes this. When interest rates normalize and equity markets continue to move forward, companies like this will do well. They have a huge exposure in Asia, which is a growing market. The concerns right now are about international markets, but those are short-term concerns. This is well-positioned for the long-term. Pays you well over a 3% yield with probably a 10% growth rate on that yield over the next 3 years.

The model price is $23.09, a 12% upside. It did an acquisition awhich he does not included in his balance sheet. The risk is that it could fall all the way back to $17.90. If you are a trader, that is your risk level. 3% dividend yield.