Great West Lifeco (GWO.TO)

(A Top Pick Sept 23/14. Up 6.37%.) If interest rates go up, he expects the stock to do even better. Still likes the stock as it is cheap.

They have done a great job. They are rock solid and pay a decent dividend. It is a well managed business. It is owned by a dual class share structured company. He doesn’t like this. The other lifecos in Canada also have much better global operations.

Of the 3 Canadian lifecos, it is probably the slowest growth. Rather than looking at this company, he would be more inclined to look at Power Financial which holds this, along with IGM (IGM-T) and others.

The stock is getting quite cheap on a comparative basis and has quite a good upside potential. He is going with the value stock in this sector. This is a laggard.

They own a big asset manager in the US which they struggled with, but now look like they are turning it around. Also, have Irish Life in Ireland which is looking better. He prefers to get his exposure through Power Corp. (POW-T), which he expects will start increasing their dividend.

Excellent upside potential. Fairly close to good, solid technical support at about $30-$31. Nice rising balance sheet. This is a play on the potential for rising interest rates. Yield of 3.76%.

It has a lot of protection from its yield. Likes lifecos in general. If we are going to see interest rates ratchet up then insurance companies will benefit. GWO-T itself is supported more by its yield than anything else and he prefers MFC-T or SLF-T. GWO-T looks expensive to him right now.

Likes the life insurance area in Canada better than the bank area because their interest-rate sensitivity is greater. When interest rates go up, they are huge beneficiaries. Also, feels they have much greater earnings growth potential. Banks have some pretty big headwinds. This lifeco is a little bit different because it recently bought Irish Life, which exposes it more to the European market. There is some confusion here, but this weekend Britain came out with some new standards as far as annuities go in England and they are a big player in that. He has seen some research reports that go both ways that it is either positive or negative for them and he is not quite sure what the answer is.

(A Top Pick Jan 18/13. Up 25.56%.) This was cheap on a Price to Book basis. The kicker here was what happens if interest rates go up.

Preferred Shares Series P? This rose to about $26.50 about a year or two ago and slipped to as low as $23 and has gotten up to almost $25. These are Perpetual Preferreds and have call date in 2017 at $26, but only if Great West Life chooses to call it. Not a big fan of this kind of Preferred.

Insurance companies do well in a rising rate environment. US 10 year rate has gone up and will continue to. GWO has a relatively cheap multiple.

(Top Pick Jan 18/13, Up 33.22%) If we got a rise in interest rates, this one would get a lift.

Why is this company climbing so much faster than ManuLife (MFC-T)? If you look back pre-crash days, ManuLife was a $42-$44 stock and it really rose to the highs on the back of variable annuity growth. However, variable annuities provided a guarantee to policyholders on certain levels of payout. Ultimately, that was the noose upon which the company got hung. Response by management was to hedge the book aggressively and this has effectively insulated the company from downside but they did it at the bottom of the market. Now the upside associated with the rising capital markets is not as direct as expected, because so much of the book has been hedged. Companies that have less hedging have performed much better.

Likes it. Higher than average dividend. Earnings growth is lower than peers. But will do well going forward. He owns Power as well but not as much as GWO.

Likes life insurance and owns through Power Financial (PWF-T). Power also has IGM and Mackenzie plus a US group. Does Europe rather than Asia, which he prefers. The most conservative of the big three lifecos.