Last up is Manulife Financial (MFC), a $27 billion insurance company. While Manulife's insurance business does dilute the ex-cash argument for the firm's P/E a bit (insurance companies need to have cash and investments on hand, and they can't just dole it out to shareholders), the degree of the difference is what makes MFC look so cheap right now. While the firm's P/E ratio sits right around the industry average at 15.8, that earnings multiple drops down to 7.77 once cash is accounted for.
Manulife is the largest life insurer in Canada, but it's really the firm's other businesses that make it an interesting name right now. Insurance has become an extremely challenging business in recent years thanks to commoditization -- effectively, as long as policy terms are the same, consumers don't care who is insuring them, so price competition has become fierce. To limit its exposure to that battle, Manulife has built an attractive wealth management business, selling investments and managing 401k accounts. Most importantly, that asset management business provides an incentive for customers with existing relationships to buy insurance products from MFC.As with E*Trade, an equity rally is hugely beneficial for insurers such as Manulife -- both because of its big equity portfolio and because of the fees it earns from its wealth management arm. The combination of an attractive valuation and a hefty 3.5% dividend yield should get investors interested in MFC in 2013. To see these stocks in action, check out this week's Hidden Earnings Bargains portfolio on Stockpickr.-- Written by Jonas Elmerraji in Baltimore.
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