As far as Canadian value stocks are concerned, Manulife Financial (TSX:MFC) is a company I’ve been touting for a long time as a great way for investors to gain exposure to the financial sector. Despite an inverted yield curve over the past year, MFC stock has outperformed. This is a stock that’s currently trading right near an all-time high, so it may be a surprise to some to see this company touted as a value pick right now.
The thing is, Manulife’s current price-earnings multiple of 15 times isn’t overly expensive, particularly considering the company’s forward growth expectations. Let’s dive into where this top insurance and finance player could be headed from here.
Financials seeing a broad-based rebound
One of the more notable developments we’ve seen as a result of the re-steepening of the yield curve is a surge in interest around financials stocks. For companies like Manulife, which provides a range of insurance and asset and wealth management services to corporate and individual clients, now may be a great time to consider adding exposure to such names.
Manulife has leveraged its core insurance customer base to grow its wealth management business, particularly abroad. With key markets in Asia seeing strong growth, this is propelling the company’s multiple higher. And while much of Manulife’s recent stock surge can be tied to multiple expansion, it’s also true that the company’s growth backs up its recent surge.
With more than 35 million customers around the world and a range of attractive and profitable services in its portfolio, Manulife’s cash flow growth profile should remain strong. Thus, the stock’s 4.5% dividend yield appears to remain well-supported and is now attractive relative to where Canadian bond yields are.
Strong financials make Manulife a buy
Expectations for Manulife have been muted following the pandemic and the inversion of the yield curve. Much of this makes sense, as Manulife is mainly an insurance player. Insurance providers have to cover longer-term expenses by matching those expenses with longer-dated assets such as bonds. When yields on the shorter end of the curve increase relative to the long end, that can affect profitability.
The thing is, Manulife has managed through this environment well. The company’s earnings grew 16% on a year-over-year basis this past quarter. Much of this had to do with the company’s strong performance across its core business segments. Additionally, the company achieved a significant reinsurance transaction milestone with Global Atlantic for four existing blocks of legacy/low return on equity business, including the largest long-term-care reinsurance deal in history. Furthermore, the company made core earnings of $364 million in Canada and $657 million in Asia.
Overall, Manulife remains among the top Canadian financial stocks I think is worth considering at current levels. On future dips in particular, I think this is a stock worth buying and holding long term.
