Why I Just Added Manulife Financial Corp. to My Watch List

Manulife Financial Corp. (TSX:MFC)(NYSE:MFC) shares have fallen, and they now look very enticing.

| More on:
The Motley Fool

Manulife Financial Corp. (TSX:MFC)(NYSE:MFC) reported very disappointing results for the fourth quarter of 2015, and the company also announced that 2016’s goal of $4 billion in core earnings may be out of reach. In response, the company’s shares are down by about 10% as of this writing.

While the results don’t look good, Manulife’s share-price drop seems very harsh. And for that reason, I have added the stock to my watch list. I explain why below.

Energy investments have hurt

Manulife’s disappointing numbers were mainly due to the decline in energy stocks, which shouldn’t surprise anyone. All throughout last year CEO Donald Guloien was confidently predicting that oil prices could not stay this low forever and that energy stocks represented a tremendous opportunity.

All in all, energy investments shaved $250 million off Manulife’s net income for the fourth quarter and $876 million for the year. The company also said that energy prices need to rebound for the $4 billion core-earnings goal to be reached.

Results are otherwise solid

Once you look past the energy losses, Manulife had a solid year. The company earned $3.4 billion in core earnings in 2015, driven largely by insurance sales in Asia, which increased 28%. Manulife’s wealth and asset management businesses also performed admirably with net flows of $34.4 billion on the year, an increase of 88%.

The big picture

Manulife shares now seem to be very cheap. To give you an idea, the stock trades at about 0.85 times book value. This means that if the company can just earn a 10% ROE (which should be very achievable over the long term), then the stock would trade for roughly 8.5 times earnings.

Keep in mind that Manulife has a strong presence in Asia, a geography that other insurers have paid big money to enter. The company also has a very strong wealth management division. So there’s no way that the shares should trade so far below book value.

Manulife seems very confident in its prospects, too. Despite the energy losses, the company increased its dividend once again, and the payout now stands at $0.185 per share, per quarter. That’s good enough for a 4.8% yield. For a company with such a strong franchise as well as some big growth prospects, this looks like a bargain. It may very well be worth adding to your portfolio.

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.

Fool contributor Benjamin Sinclair has no position in any stocks mentioned.

More on Investing

A cannabis plant grows.
Cannabis Stocks

Canopy Growth Stock Is Rising But I’m Worried About This One Thing

Canopy Growth stock is soaring as the legalization effort makes real progress in both Germany and the United States.

Read more »

young woman celebrating a victory while working with mobile phone in the office
Investing

3 Roaring Stocks to Hold for the Next 20 Years

These top TSX stocks are excellent long-term buys, given their multi-year growth potential and solid underlying businesses.

Read more »

Two seniors float in a pool.
Dividend Stocks

TFSA: How to Earn $1,890 in Annual Tax-Free Income

Plunk these investments into your TFSA to earn passive income and avoid the taxman.

Read more »

grow dividends
Investing

Here’s My Top 3 TSX Stocks to Buy Right Now

Even though the TSX has been rising, there are still some good bargains out there. Here are three top compounding…

Read more »

Target. Stand out from the crowd
Investing

Prediction: This Canadian Growth Stock Could Double by 2030

Alimentation Couche-Tard (TSX:ATD) is a top growth stock that could do well over the next six or so years.

Read more »

Businessman holding AI cloud
Tech Stocks

Could Investing $20,000 in Nvidia Make You a Millionaire?

Nvidia stock has made investors millionaires in the last 10 years. Is it too late to invest to become a…

Read more »

Engineers walk through a facility.
Dividend Stocks

1 TSX Stock I Wouldn’t Touch With a 10-Foot Pole

AtkinsRéalis (TSX:ATRL) is one TSX stock I'd never invest in.

Read more »

money cash dividends
Stocks for Beginners

Have $500? 3 Absurdly Cheap Stocks Long-Term Investors Should Buy Right Now

If you're looking for cheap stocks, these three have a huge future ahead of them, all while costing far less…

Read more »