Manulife is Desjardins Top Lifeco Pick

Canadian life insurance stocks outperformed banks throughout 2007 and will likely do better than the banks in 2008 too, said Desjardins Securities analyst Michael Goldberg in a note to clients Monday.

The big Lifecos, which begin report annual earnings for 2007 next week, were largely untouched by financial sector turmoil that started in the United States, and spread around the world last year.

But lately, the life insurers have slipped against the banks, especially because of softening equity markets, lower government bond yields, and the sky-high loonie that is taking a bite out of earnings from extensive operations in the U.S. and overseas.

However, the lifecos will see a return to form and their stocks will do better than those of the banks this year, said Desjardins Mr. Goldberg.

He said:

They have similar price/earnings valuations as banks despite superior earnings and dividend growth prospects in 2008. Business platforms outside Canada are also superior to the banks and demographics remain favourable.

Desjardins' top pick is Manulife Financial Corp. (MFC), with a target price of C$48.50.