by James Brumley | March 20, 2013 12:02 pm
If you thought American stocks have been on fire of late, then you must not be keeping tabs on Japan’s stocks.
Since the November bottom for the global market, the S&P 500 has rallied a solid 13%, but the iShares MSCI Japan Index Fund (NYSE:EWJ) has trounced that index with a 21% romp. And unlike the American market, Japan’s equity rally is still going strong.
Surprised? You’re not alone. Japan was supposed to be in a heap of trouble, still shaking off the impact of 2011’s tsunami (and subsequent nuclear reactor meltdown), and still struggling with a turbulent relationship with its biggest trade partner, China.
As it turns out, Japan may not be in as much trouble as some assumed, for a variety of reasons. One of them is the installation of new government officials … the new head of the Bank of Japan in particular.
Think of incoming Bank of Japan chief Haruhiko Kuroda as the counterpart to the Federal Reserve’s Ben Bernanke, only much more aggressive. He and the now-majority Liberal Democratic Party are very much in support of stimulus action to rock the country out of what’s now become a 20-year, deflation-laden rut.
The outgoing Bank of Japan governor has explicitly warned there is no easy or quick fix for the country’s deflation, and he’s probably right. But, the incoming party and Kuroda in particular seem more concerned about doing something big, and soon — consequences be damned.
Keeping the yen weak (and therefore keeping Japan’s exports strong) seems to be part of that plan. That could mean two to three good years of stimulus-driven upside for stocks before the piper gets paid. That’s two to three years of bullish opportunity for investors.
Here are three Japanese stocks positioned to make the most of stimulus effort:
There’s no way to deny that Sony (NYSE:SNE) has been losing ground on most of the fronts where it competes, whether that be phones, consumer electronics or entertainment.
The smartphone race has become a two-horse competition between Samsung (PINK:SSNLF) and Apple (NASDAQ:AAPL), the advent of digital media has made movies and television a tricky business, and consumer electronics are almost entirely a commodity now that South Korea and China are entrenching themselves into the electronics market . Yet, Sony has finally found its stride … and place.
Take smartphones for instance. With the iPhone and Galaxy dominating the American market, Sony’s content to shoot for the No. 3 spot, knowing it won’t be able to knock off the top two names in the space. But its new Xperia Z smartphone may well let the company achieve that goal. The phone appears to have sold out in Japan, France, Germany, Hong Kong and Taiwan.
Granted, supply might have been minimal, but draw any sort of crowd against more established competitors is encouraging. Sony seems to have figured out a winning formula, not just on the phone front, but on all fronts.
While it might not be a household name to American investors, that doesn’t mean Mizuho Financial Group (NYSE:MFG) isn’t a huge name in Japan. In fact, it’s one of Japan’s biggest, with a market cap of $54 billion. The size is irrelevant though — Mizuho is primarily a value play here, with a forward-looking P/E 13.15.
And that’s not the only reason you’d want to take on a stake in Mizuho Financial. If you’re truly a believer that Japan’s got a bright near-term future, banks and brokerage houses are going to the facilitators of that growth and prosperity. That puts Mizuho in a prime position for strong growth this year and next.
Another name glad to be playing that middleman role in front of strong economic growth is Nippon Telegraph & Telephone (NYSE:NTT). It’s not just a phone company, however. It’s a provider of all things digital, including cyber security, cloud computing and other Internet-centric services … services that will only see more demand as technology moves forward and strains on current telecom infrastructure pile up.
More than that, Nippon Telegraph & Telephone is a value-lover’s dream with high-growth prospects. The trailing P/E of 7.6 is impressive, but not even as impressive as the forward-looking P/E of 6.1 (a totally plausible earnings-to-growth outlook). Throw in the dividend yield of 4.4%, and what you’ve got is a low-risk way to play Japan’s economic expansion that the new government administration seems intent in cultivating.
Japan has been seen as an off-limits arena for years, and recent news like disputes with China, a tsunami, a fairly inept government, weak GDP growth, and swelling sovereign debt have only stoked the flames of worry.
That’s the right time to start shopping though — when things look most troubling. There’s a light at the end of the tunnel for Japan’s stocks in the meantime, even if most investors haven’t noticed yet.
Some of these stocks are overbought right now, so it might pay to be patient with any entries. But they’re worth the wait.
As of this writing, James Brumley did not have a position in any of the aforementioned securities.
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