Manulife, Sunlife or Great-West? By the numbers

A matter of eenie, meenie or can we glean an insight into which of these 3 is the best investment by looking at the numbers?

| More on:
The Motley Fool
You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

Canada’s big three life insurance companies are slowly but surely climbing back into investor’s good books.

With equity markets melting up, bond yields lifting and traction being gained on the international strategies of all three, times are relatively good.

Year-to-date, Manulife’s (TSX:MFC,NYSE:MFC) stock has remained true to its high beta roots by leading the group with a 17.5% return.  Great-West’s (TSX:GWO) stock is slightly behind at 16.3% thus far in 2013, and Sunlife (TSX:SLF,NYSE:SLF) brings up the rear at 12.6%.  Relative to the S&P/TSX Composite Index’s flat return, these numbers look pretty good.  Plus, all pay attractive dividends to boot.

The question is, assuming conditions remain favourable, which is the best horse to ride going forward?  Past performance may not be indicative of future returns.

Let’s take a look at some company specific fundamentals as well as the relative value of each to help us properly align our bets.

Profits and growth

Three of the most important metrics to examine when looking at a life insurance, or any financial company for that matter are return on equity (ROE), return on assets (ROA), and growth in book value per share.  The table below provides a summary.

Company Name

ROE

10 Yr Avg ROE

ROA

10 Yr Avg ROA

5 Yr BVPS Gr

Great-West

13.7%

13.3%

0.7%

1.3%

0.4%

Sun Life

8.9%

8.8%

0.6%

0.8%

3.2%

Manulife

3.9%

8.9%

0.2%

1.2%

-5.1%

Source:  Capital IQ

Relative to historical profitability metrics, Manulife clearly has the most room left to run.  Although results have improved, the company has seemingly only scratched the surface of returning to past levels.

Same goes for growth.  None of the three have been particularly exceptional at growing book value per share over the past 5 years, however, Manulife was particularly bad.

Valuation

The great equalizer in investing is of course valuation.  If a company appears poised to rebound, as MFC does, but its shares have already moved to price in this recovery, investors could be left with a poor performing stock.

To help us with this angle, tabled below are the current price/book multiple for each, as well as their 10 year averages.

Company Name

P/B

10 Yr Avg P/B

Div Yield

Great-West

2.2

2.5

4.3%

Manulife

1.3

1.8

3.3%

Sun Life

0.9

1.4

4.9%

Source:  Capital IQ

Great-West’s dominance of the profitability metrics obviously has carried through to the valuation portion.  It sports a multiple significantly higher than its peers and at just a 12% discount to its long-term average, is the least discounted of the three.

At the other end of the spectrum, even though Sun Life’s profitability has more or less reverted to its long-term averages, its valuation clearly hasn’t.  Sun Life trades at the lowest multiple to book value and sits 36% below its long-term average.  And, it has the highest dividend yield to boot.

If Sun Life’s profitability remains in-line with current levels, it stands to reason that its multiple should move higher.  This could result in a nice move for SLF shareholders over the short to medium-term.

The Foolish Bottom Line

Near sighted moves aside, all three of these companies have a very bright future as a world of opportunity and very favourable demographic trends await.  Execution is always important, but as long as they are able to forego any significant mishaps, it’s tough to see how you’ll lose if you simply buy these companies today and leave them alone for 10 years.

Canadian index funds can be lethal for your portfolio.  If you own or are thinking of purchasing a Canadian index fund, you need to click here to receive our special FREE report “Buy These 5 Companies Instead of Following a Flawed Piece of Advice”.  Your portfolio will thank you for reading this report!

Follow us on Twitter and Facebook for the latest in Foolish investing.

Fool contributor Iain Butler owns shares of Sun Life Financial.  The Motley Fool doesn’t own shares in any of the companies mentioned.   

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

More on Investing

Supermarket aisle with empty green shopping cart
Investing

$183 for Toilet Paper and Cups: Why We Love Costco Stock

"I literally went up there to get two things."

Read more »

A worker gives a business presentation.
Investing

TFSA Investors: 2 Top Stocks to Buy Before They Rally Any Further

Although plenty of top Canadian stocks have been rallying recently, these two still offer great value and are perfect for…

Read more »

growing plant shoots on stacked coins
Stocks for Beginners

3 TSX Stocks With High Dividend Yields

Are you looking for a great opportunity to bolster your portfolio? Here are three TSX stocks with high dividend yields.

Read more »

financial freedom sign
Stocks for Beginners

1st-Time Investors: 2 Cheap Canadian ETFs to Buy for Financial Freedom 

Investing for the first time but don’t know where to start? Here are two cheap Canadian ETFs that can grow…

Read more »

Money growing in soil , Business success concept.
Dividend Stocks

Got $4,000? 4 Simple TSX Stocks to Buy Right Now

The macroeconomic environment is tense but investing can be simple. Here are four stocks to buy now and book your…

Read more »

Oil pumps against sunset
Energy Stocks

2 Top Canadian Energy Stocks to Buy Offering Dividend Yields Above 6%

These two top Canadian energy stocks are excellent long-term investments and offer unbelievable dividend yields if you buy them today.

Read more »

Target. Stand out from the crowd
Investing

4 TSX Stocks I Own and Will Buy More of if They Fall

These are my four top choices of TSX stocks that may dip in the future, but will pay me back…

Read more »

Dollar symbol and Canadian flag on keyboard
Stocks for Beginners

The 2 Best Canadian Stocks for Beginners Right Now

Stock market beginners in Canada could kickstart their investing journey by buying these two stocks right now.

Read more »