Manulife Financial (MFC.TO)

Finds the banks very boring. They just came out with earnings. Would prefer an insurer to the banks and thinks MFC-T purchase of Standard Life does a lot for them. It is a fantastic purchase.

(A Top Pick Oct 22/13. Up 22.8%.) This pick has quite a bit to do with the expectation of higher interest rates. They are making money now and firing on all cylinders. This is a company where if you get a normalized yield curve, it doesn’t hurt them, but actually helps them. It should continue to do very well. Has a big Asian operation, which could do very, very well. Yield of 2.85%.

Just recently bought it. Sees rates going higher. He also sees a higher stock market. The core business has growth potential. The stock is not expensive. The life companies have lagged the banks. He would own both over the long term.

Manulife (MFC-T) or Sun Life (SLF-T)? These are equal as to which one he likes. This one has a model price of $25.72, a 16% upside. You have got to love the insurance companies. 2.5 years ago they were both coming out of the blue (his strategy). He has been holding both and they are both great. Thinks they will do well.

Receipts are being offered because of the Standard Life acquisition. If the deal falls through, you will get your money back. She would buy the receipts, and upon the deal closing, you turn it into the stocks. She likes lifecos in this environment. Rate increases tend to be very good for them.

With its most recent move to buy Standard Life’s Canadian business, it raised its dividend for the first time since it halved it in 2009. Very encouraging sign. Still likely to have further dividend increases.

He added some on in that equity deal last week. The valuations on life companies are a little better than banks right now. Standard Life acquisition: he thinks they are underplaying the earnings accretion. They’ve really turned the corner.

Seasonal strength tends to run from about March through until June and is positive about 80% of the time. Through the end of the year, it can be variable. If you see some weakness here, that would be an opportunity to Buy. Chart is showing a bit of consolidation at around $22.50. If it breaks out above $22.50, that would be a Buy. He expects there will be a bit of consolidation lower than it is here. The peak period of seasonal strength is from March through to June.

Thinks that inevitably higher rates are coming in. This is a nice combination. Just raised the dividend. Good earnings growth. Also, if rates go up faster than you think, this will be one of the beneficiaries. The Standard Life acquisition is accretive. Yield of 2.70%. Looking for $25 a year from now.

The insurance side is struggling in Canada, but they think there is growth in Asia. This is the benefit of the standard life acquisition.

MFC-T versus the banks? He looks for sectors that have gone through some material change that could support out-performance going forward. This is in a sector that under-performed for a long time while equity markets were weak. 2012 marked the beginning of a new secular bull market for stocks so you invest in companies that make money from that. This company is in the wealth management business. It looks like they will have greater growth in earnings going forward, yet it trades at a multiple that is cheaper than the banks. Expects the dividend growth will accelerate yearly and earnings will continue to get better.

Started getting interested when it looked like the earnings were becoming less volatile and management was able to focus on their core earnings. She wanted to see BV growth, which would translate to a higher ROE. The stock price has lagged the Canadian banks and Sun Life (SLF-T). Likes their exposure to Asia, which is 30% of their earnings. Thinks this is a higher growth region in this market. Increased their dividend by 19% last quarter, which sent a strong signal that management was very comfortable with the sustainability of their earnings going forward. Liked the acquisition of Standard Life. Yield of 2.82%.

Got out during the financial crisis because they were overleveraged. Now he feels they are underleveraged. Prefers SLF-T. Owns PWF-T also. The deal with MFC-T yesterday underlines his feelings.

Good leverage to equity markets, which are doing okay. However, interest rates are going the wrong way for life companies. Longer-term he likes life insurance business, because of their wealth management and because rising interest rates are good for earnings. (See Top picks.)

Before the recession they were going to take over the world. Then they got into trouble and had to cut the dividend. They remain in the penalty box. Now rising interest and equity markets are not going to have as much effect on the valuation. Prefers SLF-T. There is more upside to banks outside of Canada.