1 Top Canadian Financials Stock to Buy This Summer

Here’s why I think Manulife Financial Corp. (TSX:MFC)(NYSE:MFC) could continue to be one of the most undervalued financials stocks on the TSX.

| More on:
Dice engraved with the words buy and sell

Image source: Getty Images.

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

Financial stocks have been a go-to option for investors who are focused on wealth protection. These stocks provide healthy dividend income and reliable total returns over very long periods of time.

Accordingly, these are stocks that one ought to consider when they’re beaten up the most. Indeed, investors who bought Manulife Financial Corp. (TSX:MFC)(NYSE:MFC) at the bottom last year certainly have a lot to show for it. This stock has absolutely taken off over the past year, and is now trading above pre-pandemic levels. That said, I think much more upside could be on the horizon.

Here’s why I think this stock is a top bond proxy investors should consider this summer.

Strong business model

Manulife is a big name in wealth management and financial protection services. How big? Well, the company has operations in more than 20 countries across the globe. So we know it’s got some real geographic diversification value for investors.

However, the company’s international footprint, particularly in Asia, provides another key element investors want today. Namely, growth. The company’s looking to continue to expand in Asia, and as it does, I expect excellent cash flow growth over the long-term.

However, what’s boggling to me is the discount Manulife trades at relative to large Canadian banks. Perhaps this company doesn’t have the cachet of its large banking peers — or maybe investors are more concerned about the disproportionate effect low interest rates have on insurance-heavy financials companies. Whatever the case, it’s what I see as an undervalued stock.

Accordingly, Manulife’s valuation (which is near book value), and the company’s dividend of 4.2% scream “buy” today. This insurance player’s diversified portfolio extends across a range of other sectors. Indeed, Manulife’s growing wealth management business as well as its private banking and securities lending businesses are excellent growth areas investors will want to be in for the next few decades.

Couple these businesses with the growth potential Asian markets provide, and investors can start to see that this company is a real long-term winner.

Valuation doesn’t get better than this

Yes, Manulife has skyrocketed above pre-pandemic levels. However, I still stand by the fact that this is an undervalued stock.

When one compares Manulife’s valuation multiple to that of the big banks, it’s clear this stock is undervalued. Manulife has consistently traded around 20% cheaper than the big banks, for really no reason at all. In fact, I like the company’s business model and geographic diversification better.

So, what gives?

Well, it appears investors remain on the fence with how the company’s investments will do in the face of rising rates. And I do think this is a key headwind to consider.

However, this is also a headwind for banks. Therefore, I continue to be baffled by this valuation discrepancy.

Today, I view Manulife as one of the safest arbitrage opportunities on the TSX right now. I think long-term investors would do well to continue to accumulate at these levels, until the company’s valuation crosses that of the big banks. Then, perhaps taking the foot off the gas makes sense.

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 Chris MacDonald has no position in any of the stocks mentioned.

More on Dividend Stocks

Woman has an idea
Dividend Stocks

2 Low-Risk Growth Stocks Paying Great Dividends

These top TSX dividend stocks give investors exposure to interesting growth opportunities.

Read more »

A person builds a rock tower on a beach.
Dividend Stocks

Got $300? 2 Simple TSX Stocks to Buy Right Now

These two simple TSX stocks have everything a long-term investor looking to dollar cost average into a position wants right…

Read more »

A golden egg in a nest
Dividend Stocks

Millennials: No Excuses! Start Saving for Retirement Right Now.

Millennials, we need to stop complaining and start bragging. We're great savers, so it's time to start investing in TSX…

Read more »

Value for money
Dividend Stocks

3 UNDERVALUED TSX Stocks to Buy in August

Here are some attractively valued TSX stocks for the long term.

Read more »

A young man throwing and catching his daughter above his head
Dividend Stocks

Parents: Double Your CCB Payments This Month!

Parents can use those CCB payments to their benefit and double them this year month after month -- no waiting,…

Read more »

stock market
Dividend Stocks

I’m Buying These 3 Resilient Stocks During a Bear Market

TD Bank stock is among the three stocks I'm buying to protect my portfolio from a bear market and to…

Read more »

edit Safety First illustration
Dividend Stocks

4 of the Safest Dividend Stocks on Earth Right Now

These dividend stocks offer up strong dividends, a cheap share price, and safety from growing, safe sectors of the market.

Read more »

A person builds a rock tower on a beach.
Dividend Stocks

Change Your Future: What to Hold in a TFSA in 2022

Holding dividend growth stocks in a TFSA long-term can change the financial futures of worried Canadians.

Read more »