Manulife Financial: Why I Wouldn’t Give Up on the Stock

Manulife Financial (TSX:MFC) stock has been a laggard, but one that seems rich with value.

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Unless you bought a considerable number of shares back during the 2020 trough, Manulife Financial (TSX:MFC) stock hasn’t quite delivered on the front of capital gains. Undoubtedly, the Canadian insurance giant has some really impressive growth prospects. The company’s Asian segment is more than capable of helping Manulife return on the growth track. In the meantime, though, economic headwinds could take a toll for longer, making Manulife stock a potentially less-timely option for young investors seeking a better shot at gains.

Though Manulife has only gained a mere 3% over the past five years, I think the swollen dividend yield (currently sitting at 5.7%) is enough reason to hang onto the stock, as we move through an economic recession. Further, Manulife stands out as one of the financials that has considerable upside come the next business cycle.

It’s hard to gauge where shares will head over the near term. The recession hasn’t arrived yet, and it’s unclear as to just how much recession-associated pains are already baked into the share price currently.

Over the past two years, MFC stock has been range-bound, fluctuating wildly between $22-27 per share. Though the road behind MFC stock is not at all exciting, investors should know that a sudden breakout could happen at any time. And if you’re caught on the sidelines, even briefly, it may be difficult to get in before the train leaves the station.

Being patient with an underperformer can be tough

Being patient with a stock you see value in is critical. Just have a look at the last few years of action in shares of grocery giant Loblaw (TSX:L), which took off suddenly after delivering years’ of underwhelming and flat performance.

Sure, the unique environment (high inflation and stretched consumer wallets) played some part in the Loblaw’s impressive 2021 surge. That said, there’s no denying that the stock rewarded those investors who were patient through the sluggish years leading up to the rally.

Personally, I think Manulife stock stands out as a value stock that will also reward investor patience. The stock sports a juicy dividend yield, with compelling secular tailwinds (the booming middle class in Asia) that could help bring Manulife back on the growth track.

It’s hard to tell what specifically will kick off Manulife’s next leg higher. Regardless, I’d be willing to stick with the stock, even if it’s destined to go sideways for a while longer. The risk/reward tradeoff, I believe, is just too good.

Manulife Financial stock: What about valuation?

Manulife stock is fresh off an in-line first-quarter round of earnings, with $0.79 in earnings per share, missing the consensus by a mere penny. At writing, the stock trades at a single-digit price-to-earnings (P/E) multiple. Although insurers and other financials will feel the rumbles of a rate-hit economy, I don’t think you can dismiss Manulife or any other under-pressure financial play as a value trap.

Single-digit P/E ratios can be too good to be true. But in some instances, the perceived value may be real, and in such a scenario, it’s the disciplined and patient investors that can improve their odds of achieving a solid risk-adjusted return.

The bottom line on MFC stock

Like with Loblaw stock prior to its 2021 surge, Manulife will continue to be a name that’s easy to forget until it isn’t. For now, I’m stashing MFC stock on my radar, just in case shares make a return to that $22 per-share level.

At the end of the day, Manulife is a great company with solid long-term prospects, but the road ahead is expected to be a bumpy one. If you have a stomach for turbulence and a long-term horizon, the $47.3 billion insurer may be your cup of tea.

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 Joey Frenette has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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