When looking at the Canadian stock market, investors trying to decide which is the best stock to buy in a specific sector may find themselves looking mainly at the financials, housing or commodities (energy) sectors. There’s certainly good reason for this, given the reality that the Canadian market is chock full of top names in these areas of the economy.
Within the financials space, Manulife (TSX: MFC) and Sun Life Financial (TSX: SLF) are two top insurance companies many investors rightly consider as top options, particularly in the Canadian financial sector.
Here’s my take on which may be the better pick right now.
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Manulife
Manulife’s status as a leading Canadian insurer provides investors with fantastic exposure to the growth potential of the Canadian market. However, Manulife has continued to grow its market share in Asia and continues to see robust top and bottom-line growth, driving its stock price higher (as the chart above shows).
What I think is most impressive about Manulife is the company’s underlying fundamentals. Trading at a price-to-earnings ratio of around 16 times with strong earnings per share growth, the company’s 3.8% dividend yield is supported by a very solid balance sheet. With a low payout ratio and strong earnings growth expected ahead, the company’s more than $6 billion in dividends and share buybacks paid over 2024 should increase this year and into the future.
Sun Life
As one of Manulife’s key competitors, Sun Life has seen similar strong growth, with the company’s first-quarter (Q1) results best summarized by earnings growth of 19% year over year. That growth came from a combination of areas, with the company’s asset management & wealth division seeing 6% profit growth, group health seeing 18% growth, and individual protection business growing 20% over the same quarter the year prior.
From a growth perspective, there’s a lot to like about Sun Life and its underlying valuation. Value-conscious investors may certainly like the company’s valuation multiple, which is actually slightly lower than that of Manulife.
Verdict
Overall, I think both companies can generally be considered substitutes for each other in a given portfolio. Those seeking greater growth potential may opt for the smaller Sun Life, and that’s certainly a good direction for those with a longer investing time horizon. But for those looking to take more defensive exposure, Manulife would be my pick. The company is the larger of the two, with a wider moat and a more ingrained customer base.
The question really comes down to risk profile and which attributes of an insurance company most appeal to a specific investor. My pick in this space continues to be Manulife, but I don’t think you can go wrong owning either (or both).
