A buy signal

Since the announcement last Friday by Manulife that the company was being investigated by the Ontario Securities Commission, share price has fallen a whopping 15 per cent. According to Mario Mendonca, of Genuity Capital, that makes Manulife cheap. “We see significant upside in the stock at current levels,” said Mendoca in a report issued before the markets opened Wednesday.

Mendonca, who was among the noisy analysts last fall urging Manulife to raise more capital, says if the S&P falls to the 700-750 level, the company would have to issue more common equity, something I’m sure CEO Donald Guloien would be loathe to do. (The S&P is currently at 900.)

Meanwhile, Mendonca has lowered his target price on Manulife from $27 a share to $25, a cautious approach given his positive view. Markets this morning opened slightly higher ahead of the Federal Reserve meeting with Manulife up 28 cents a share in the first few minutes at $20.52.

(Declaration: I hold MFC and have done so since prior to beginning my research on the book early in 2008. With the exception of dividend reinvestment, I conducted no trades in the stock.)

UPDATE: A week later, Mendonca downgraded Manulife to a HOLD, the same as saying: sell. Mendonca said that Manulife’s message was so “nuanced” (translation: confusing) he had no choice but to reverse his field. With no new information issued by the company, the analyst’s conclusion was unusual to say the least. But it wasn’t nuanced; it was a clear 180-degree turn.

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