Manulife Financial (MFC.TO)

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.

Has performed pretty well over the last 18 months and still has a fairly nice yield. Just bumped the dividend last quarter. Trading at a pretty reasonable multiple. This would be a benefactor of higher interest rates. Likes their international exposure. 2.8% dividend yield.

This is not a good seasonal time for them. It is outperforming the market, in an upward trend and above its 20 day moving average so one should hold it.

In terms of valuation versus growth prospects, he feels this is a better option over Sun Life (SLF-T). It’s a very encouraging sign that they have raised their dividend. This means they are comfortable with their business outlook and their capital position. Yield of 2.79%.

It is a difficult choice between MFC-T and SLF-T. MFC has been doing better later. They are overseas in the far east, but it is hard to quantify profits from this. Thinks MFC is slightly better than SLF.

The biggest factor is the shape of the yield curve when you compare to banks. Interest rates will be low for a long, long time. Deflation is the bigger risk than inflation. If the yield curve stays steep then banks will continue to profit from it, not insurance companies.

Not expensive. Trading at 10X earnings. Increasing their dividends which is great. When you look at the numbers and delve into it a little bit more, the financial side did well, but their insurance was down a fair bit. With interest rates being so low, it is hard for them to make a lot of money. He would prefer owning at bank instead.

They benefit largely from better equity markets and higher rates. Also, have a lot of exposure to Asia, which has been quite good to them over the years. Importantly they are improving on what is happening to them in the US. Made big investments there. Stock has been stuck in the low $20’s for quite a while and is looking more appealing to him.

Prefers Sun Life (SLF-T) where the quality of the company is higher and the quality of their earnings is less risky. This one was a lot more risky than the other lifeco’s, and still has some of that.

Trading at a Price to Book of around 1.4% and is on track for its 2016 targets, and he sees them growing their annual compound growth rate and operating earnings at 19% over the next 2 years. This is a name for the future.

Stock vs. Stock. MFC-T vs PWF-T. He likes both and holds neither. His preference is MFC-T at this point, but insurance companies could be impacted by interest rates staying low for a long time.