Manulife Financial (MFC.TO)

Likes the growth profile because of their Asian operations. The 2 biggest factors driving the valuation are the stock market and rising interest rates. Going forward, there is less upside for the next couple of years. He would like to see it check back into the $18 range.

If you are going to own this, you have to make a bet on what you think interest rates are going to do and what you think the stock market is going to do. Last year, everything worked in this company’s favour. This year, things have not worked out in their favour as interest rates have dropped, the stock market has dropped and they have exposure to emerging markets. The moving parts are too opaque for him to figure out. He prefers more exposure to the US and he is playing it through US investment banks.

This company has had a pretty big turnaround. There were a lot of issues. The biggest risk is that the current drop will continue. If it does, he doesn’t think it will go much further below $18.50. So if you buy it or own it now, you have $1 down risk. If the market recovers, this is probably one of those stocks that has good potential to continue moving up in a nice upper trend. You want to see it in the next couple of months above $22, probably before the beginning of the summer, otherwise it has the potential to fail.

The only thing that is going to cause this to move up significantly is an increase in interest rates. Very good company, but so much of the exposure has been taken out through their hedging program that it really will only run relative to the speed of the general markets. Sun Life (SLF-T) would probably be better because it has less hedging involved. Dividend will be safe.

Only has a period of seasonable strength Jan to Apr each year. Sector was under pressure the last few weeks. It is a buying opportunity.

Manulife (MFC-T) or Sun Life (SLF-T)? Doesn’t own either, but if he did, it would probably be this one. It’s a bit bigger and has a great track record. Becoming very active in China which he thinks will be a great market for them.

Just bought this over the past year. They benefit in this market in a few ways such as better equity markets and better returns on their investment portfolio. With equity markets doing a little better, the investment business selling wealth management is helped. Higher interest rates over the last year helped them on their bond portfolio although he doesn’t expect the same kind of tailwind this year. This is about 1 multiple-point more expensive than the banks but will probably grow its earnings at about twice that of the Canadian banks. Dividend of 2.39%.

This has not been his favourite in this sector. Prefers Sun Life (SLF-T) or Power Financial (PWF-T) somewhat better. A little higher risk so he would consider it a Hold or Sell. The yield doesn’t match what you could get from the other two. A lot of their growth is dependent on what goes on with their Chinese operations and he finds this area opaque enough that you can’t be totally dependent on that sector for growth. This is a risky use of the insurance products out there.

Risks or benefits of rising or falling interest rates with regards to this company are diminishing. Biggest growth factor for them is their ability to grow earnings and profitability on an international basis. Good management team. Thinks they can continue to grow their earnings at a fairly decent pace and you’ll start seeing their dividends growing at a decent pace.

A 2013 story. The lifecos will benefit disproportionately well in the movement in interest rates. Also, they benefit from the dropping CAD$. There are a host of things that work well for the lifecos. The factors that caused MFC to outperform in 2013 could persist in 2014.

(A Top Pick Jan 21/13. Up 56.45%.) He would stay Long on insurance companies. This one is the insurance company that seems to be most exposed to a falling Cdn$. If you don’t own, consider buying on a little bit of a pull back.

Doesn’t see many of the Canadian insurers increasing dividends until they get more clarity on some of the regulatory rules with regard to capital. Cut their dividend in 2008 so probably won’t raise it again until they are very sure they are going to be able to maintain it. He is getting more positive on the Canadian insurance space; however the market has run these companies up in expectation of higher rates. It will have to be their core business that propels the next move in the stock. He would be cautious but thinks you should own some insurance in your portfolio. Prefers Sun Life (SLF-T), which has a better dividend yield and a little better stability.

Closed at $21.59 and he has a model price of $24.36, a positive 13%. He thinks it runs to $23.66. If it comes back to the $19.40 level, he would certainly Buy.

Sell or hold for more upside? When you see a chart like this one has, there is always a temptation to become a trader. There is probably more upside in this stock. Has been crushed because of lower interest rates. His view is there will be higher interest rates and this is very well-positioned, especially in Asia.

Manulife (MFC-T) or Sun Life (SLF-T)? Low interest-rate environment that we had been in for the last 3-4 years has been terrible for insurance companies. We are now in an environment where everybody expects bond yields to go up, which can only be positive for life companies going forward and it is expected to see better earnings on their portfolios. Feels this one probably has more leverage as it has more international exposure and a little bit more scale.