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Manulife Financial Corporation (MFC $45.45)
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Power Corporation of Canada Subordinate Voting Shares (POW $61.75)
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Sun Life Financial Inc. (SLF $61.96)
Q: I hold SLF and MFC for income and a little growth. Do you see the need to also own POW for the same mandate? Can you help explain the significant outperformance with POW this last year compared to SLF and MFC?
5i Research Answer:
POW was a bit of a dog and a value trap for many years, with low growth and reducing margins in a very competitive industry. There was some EPS growth, but not much for close to a decade. But operating margins and net margins have really turned, and EPS growth now (and expected) is higher than it was. Good cost control and good products have combined with good markets to get things going again. We would, however, not expect the same type of returns going forward. It is a solid company, and well-priced, and with a 4% dividend, but it is not the type of stock to rise 48% every year, as it has done in the past 52 weeks. We think it is fine, but with exposure elsewhere we would see little benefit in adding it.