great-west lifeco

We’ve said for some time that insurers are riskier than they look. Insurance has a stable image, but it has always been highly competitive and volatile. For safety-conscious investors, right now we recommend just three Canadian insurance companies as buys: Manulife Financial, Great-West Lifeco and Sun Life Financial. SUN LIFE FINANCIAL $50.54 (Toronto symbol SLF; SI Rating: Above-average) offers savings, retirement, pension and life and health insurance products and services to individuals and corporations. The company operates mainly in Canada, the U.S. and the UK, and also in Asia and India. It has assets under administration of $436.5 billion. In the three months ended December 31. 2006, Sun Life’s earnings rose 14%, to $545 million or $0.95 a share, from $478 million or $0.82 a share a year earlier. Revenue rose 15%, to $6.1 billion from $5.3 billion a year earlier. The company recently raised its quarterly dividend by 6.7%, to $0.32 from $0.30. The shares now yield 2.4%....

GREAT-WEST LIFECO INC. $34 (Toronto symbol GWO; Conservative Growth Portfolio, Finance sector; SI Rating: Above average) is Canada’s largest insurance company, with assets under administration of $197.5 billion. Power Corp. of Canada, through subsidiary Power Financial Corp., controls about 70% of Great-West’s shares. In Canada, the insurance business is mature and concentrated among major insurers and the big five banks. While the strong economy has spurred demand from employers for group insurance, demand for individual policies is sluggish....

CANADIAN NATIONAL RAILWAY CO. $54 (Toronto symbol CNR; Conservative Growth Portfolio, Manufacturing & Industry sector; SI Rating: Average) plans to increase capital spending in 2007 by 4% over 2006. About half will go to basic items like replacing tracks and repairing bridges. It will also buy new locomotive and other railcars that will cut its fuel costs and improve safety. CN Rail is a buy. GREAT-WEST LIFECO INC. $34 (Toronto symbol GWO; Conservative Growth Portfolio, Finance sector; SI Rating: Above average) continues to expand its retirement savings and healthcare insurance operations in the United States....

GREAT-WEST LIFECO INC. $33 (Toronto symbol GWO; Conservative Growth Portfolio, Finance sector; SI Rating: Above average) has agreed to pay an undisclosed sum for Indiana Health Network, Inc., which provides healthcare services to group and individual policyholders. The purchase enhances Great-West’s growing health insurance operations in the United States, and will immediately add to its profits. In the meantime, Great-West earned $0.54 a share in the third quarter of 2006, up 14.9% from $0.47 a year earlier, mostly due to strong gains at its European operations. If you exclude the impact of the higher Canadian dollar, which hurts earnings from Great- West’s non-Canadian businesses (roughly 50% of earnings), income in the most recent quarter would have grown 24%. Revenue rose 16.9%, to $9.0 billion from $7.7 billion. Ottawa’s plan to tax income trusts has spurred fresh investor interest in high-quality dividend-paying stocks like Great-West. The current $0.96 annual rate yields 2.9%....

We’ve said for some time that insurers are riskier than they look. Insurance has a stable image, but it has always been highly competitive and volatile. For safety-conscious investors, right now we recommend just three Canadian insurance companies as buys: Manulife Financial, Great-West Lifeco and Sun Life Financial. SUN LIFE FINANCIAL $45 (Toronto symbol SLF; SI Rating: Above-average) offers savings, retirement, pension and life and health insurance products and services to individuals and corporations. The company operates mainly in Canada, the U.S. and the UK, and also in Asia and India. It has assets under administration of $387.2 billion. In the three months ended June 30, 2006, Sun Life’s earnings rose 7.3%, to $512 million, or $0.88 a share, from $477 million or $0.81 a share a year earlier. Revenue rose 4.1%, to $6.2 billion from $6 billion a year earlier. The company recently raised its quarterly dividend by 9.1%, to $0.30 from $0.275. The shares now yield 2.7%....

GREAT-WEST LIFECO INC. $28 (Toronto symbol GWO; Conservative Growth Portfolio, Finance sector; SI Rating: Above average) is one of Canada’s largest insurance companies, with $191.3 billion in assets under administration. It sells its insurance products directly and through brokers to both individuals and groups. Power Financial controls about 75% of Great-West. The company also provides wealth management and other financial services. Great-West gets roughly 50% of its profit from Canada, 30% from the U.S. and 20% from Europe. Great-West’s revenues rose from $16.1 billion in 2001 to $23.9 billion in 2005, or 10.4% compounded annually. Much of that growth is due to Great-West’s 2003 purchase of rival Canada Life Financial Corp. for $7.2 billion in cash and stock....

Holding companies tend to trade for less than the value of their various pieces (‘holding company discount’). Still, despite the apparent bargain, we only recommend the holding company over its subsidiaries when we have a high opinion of all the subsidiaries. A good example is our longtime favourite Canadian Pacific Ltd. When it broke itself up into five new companies in 2001, we saw all of the new stocks as buys.

Power Corp., Toronto symbol POW, through subsidiary Power Financial Corp., Toronto symbol PWF, currently controls two of our long-time recommendations: Great-West Lifeco Inc. and IGM Financial Inc.

However, Power Financial also holds several European companies. We feel that weaker economic conditions in Europe expose Power Financial investors to more risk than either Great-West or IGM. Conservative investors are better off with these two instead of the parent. Both offer value, income and an excellent way to diversify the Finance sector of your portfolio.

GREAT-WEST LIFECO INC. $28 (Toronto symbol GWO; Conservative Growth Portfolio, Finance sector; SI Rating: Above average) is one of Canada’s largest insurance companies, with $191.3 billion in assets under administration. It sells its insurance products directly and through brokers to both individuals and groups. Power Financial controls about 75% of Great-West.

The company also provides wealth management and other financial services. Great-West gets roughly 50% of its profit from Canada, 30% from the U.S. and 20% from Europe.

Great-West’s revenues rose from $16.1 billion in 2001 to $23.9 billion in 2005, or 10.4% compounded annually. Much of that growth is due to Great-West’s 2003 purchase of rival Canada Life Financial Corp. for $7.2 billion in cash and stock.

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GREAT-WEST LIFECO INC. $30 (Toronto symbol GWO; Conservative Growth Portfolio, Finance sector; SI Rating: Above average) has paid an undisclosed sum for roughly 2,600 small and mid-sized U.S. pension plans. The deal expands the company’s U.S. pension plan asset base by 9%, and should increase its earnings in 2007. The purchase should also make it easier for Great-West to offer these new clients other services, such as employee healthcare plans. The company gets over half of its income from businesses outside of Canada, and the high Canadian dollar has hurt Great-West’s overall profit growth. But the rising dollar also cuts the cost of foreign acquisitions. The stock now trades at 14.0 times the $2.15 a share Great-West will probably earn in 2006. Great-West Lifeco is a buy.

NOVA CHEMICALS CORP. $37 (Toronto symbol NCX; Conservative Growth Portfolio, Manufacturing & Industry sector; SI Rating: Extra risk) lost $0.06 a share in the three months ended March 31, 2006, mostly due to problems restarting a plastics plant in Ontario after an upgrade (all amounts except share price in U.S. dollars). It earned $1.06 a year earlier. Revenue grew 4.0%, to $1.55 billion from $1.49 billion. Demand for Nova’s plastics should improve this year, as customer inventories fall. The stock is cheap at just 7.5 times the $4.50 U.S. a share it should earn in 2006. Nova Chemicals is a buy....

GREAT-WEST LIFECO $29 (Toronto symbol GWO; SI Rating: Above-average) is a leading Canadian insurance company, with $177.3 billion in assets under administration. The company also provides wealth management and other financial services. It also operates in the U.S. and Europe. Power Corp. of Canada controls about 75% of the company’s common stock. Great-West’s earnings in the three months ended December 31, 2005 rose 10.3%, to $469 million or $0.53 a share from $423 million or $0.48. Revenues rose 13.6%, to $6.52 billion from $5.74 billion. Earnings growth came from the company’s Canadian and European operations. Canada accounts for 38% of total revenues. Canadian earnings in the latest quarter rose 16.7%. European revenues comprise 45% of the total. Earnings in that region rose 9.9%....