Finding undervalued stocks can be like uncovering hidden gems in the stock market. From time to time, companies trade below their intrinsic value. Those who can pick these companies out of the myriad of options available to investors can get very wealthy. That’s the name of the game, at least.
For a long time, I’ve viewed Manulife Financial (TSX:MFC) as an undervalued insurance and wealth management giant, and that’s been the case for a number of years. However, with the stock breaking out this past year (see chart below), perhaps this company isn’t as undervalued as it once was.
That said, I still believe this ought to be a top holding for investors looking to generate a million-dollar portfolio for retirement. Here’s why I think MFC stock is worth a look, even after its more than 70% run-up over the past year.
Source: Getty Images
Solid financials
Even after this explosive year, Manulife stock still trades at a multiple of around 15 times earnings, which is quite reasonable compared to many other companies in this industry and the market overall. The fact that Manulife serves more than 35 million customers globally (almost the population of Canada itself) is indicative of the company’s global reach. Expanding into key markets in the U.S. and Asia, Manulife has grown its portfolio meaningfully, particularly in the wealth management space.
This has allowed for solid earnings per share growth over this past quarter. Manulife brought in $0.66 in EPS for the second quarter (Q2), exceeding analyst estimates and encouraging some upgrades. The company’s strategic positioning within the financial services industry enhances its overall product portfolio and makes the company a potential beneficiary of this ongoing bull market we’re seeing in stocks.
Why does this stock have millionaire-maker status?
Manulife is exactly the kind of “boring” dividend stock with real capital-appreciation upside I like to focus on. With a yield of 3.6% (which has come down considerably thanks to the stock’s incredible performance lately), investors are still getting bond-like yields from this insurance giant. And if the company continues to perform as it has and sees continued earnings growth, I wouldn’t be surprised to see its distributions rise over time. Thus, while the yield may be 3.6% today, in a few years’ time, investors could be dealing with a much larger distribution. That’s my base case, at least.
From a business model perspective, I think there’s a lot to like about the defensive nature of Manulife’s business. Being able to take in premiums from its clientele and invest those for the long term while paying out claims along the way is a winning model. World-class investors like Warren Buffett have made a career of investing in insurance companies, taking advantage of this float. It’s no different with Manulife.
Additionally, I think the company’s diversified revenue streams significantly insulate investors from shocks and one-off effects for one side of its business or another. Overall, Manulife is a top stock, and I think it is worth buying right now and holding for the long term. I’m sticking with this view.
