When history looks back at the impact of the novel coronavirus, the most apt description of this era will be “surreal.” During the early days of the crisis, major metropolitan areas from Los Angeles to New York fell deafeningly silent. But the economy also suffered its fair share of unprecedented circumstances, one of which is leading to an intriguing case for Japan stocks to buy.
As you know, inflation has soared, leading many consumers to buy goods and services now since the dollar will likely be worth less in the future. Yet at the same time, dollar strength has only grown more robust. What gives? According to the Wall Street Journal, rising prices have opened the door for the Federal Reserve to end monetary stimulus, presenting a compelling albeit risky argument for Japan stocks to buy.
Primarily — and all other things being equal — American consumers can purchase more goods from exporting nations. Considering that retail revenge has spurred substantial increases in spending to make up for a lost year in 2020, this narrative bodes well for Japan stocks. Additionally, every nation is eager to bounce back from the pandemic. The rising dollar happens to benefit exporters at just the right time.
Another factor to consider is that the Japanese yen presently looks weak. While you shouldn’t put too much emphasis on technical (chart) analysis and ignore other conditions, the yen is currently trending well below multi-year averages. It appears, though this is no guarantee, that the currency is charting a bearish pennant formation, which implies downward action. Cynically, this could benefit Japan stocks.
Further, the underlying nation has been societally stable, getting a firm grip on the Covid-19 pandemic. Of course, anything can change, especially with the unknowns associated with the omicron variant. Nevertheless, you may want to consider parking some of your funds in Japan stocks as a natural hedge against the rising dollar — and new normal distractions.
- Sony (NYSE:SONY)
- Nintendo (OTCMKTS:NTDOY)
- Toyota (NYSE:TM)
- Mitsubishi UFJ Financial Group (NYSE:MUFG)
- Panasonic (OTCMKTS:PCRFY)
- Lasertec (OTCMKTS:LSRCY)
- Seiko Epson (OTCMKTS:SEKEY)
Before you plunk your cash into Japan stocks, you should realize that indirectly hedging against currency fluctuations is a tough proposition. Further, other nations can encounter their own specific issues, which may negative the impact of favorable currency fluctuations. Therefore, due diligence and money management maintain their importance.
Japan Stocks to Buy: Sony (SONY)
This is going to seem self-serving, but I’ve got to go with Sony as the best idea to consider among Japan stocks. No, it doesn’t have anything to do with the fact that I worked there previously. And no, while I do own SONY shares — and probably will hold onto a core position for a very long time — my personal holdings did not factor into my analysis.
Rather, amid the general decline in popularity for Japanese consumer electronics over the last several years, Sony has been the rare animal that has gone against the grain. Specifically, its PlayStation video game console continues to churn out impressive sales performances. I’d add that the company’s entertainment unit kept the lights on during Sony’s struggles in other business categories.
But with the new normal, the urgency to own the latest PS5 console has soared into unprecedented territory. I haven’t had time to play video games in recent years but from what I can tell, these things are flying off the shelves.
Add in the pressure to buy accessories — you never know when they’ll be back in stock again — and you have in SONY one of the best Japan stocks to hedge the rising greenback (and pretty much anything else).
In my research regarding family friendly gaming giant Nintendo, I came across a story regarding a failed attempt by Microsoft (NASDAQ:MSFT) to buy out the company. Back in 1999 — two years before the software stalwart launched its Xbox console — Microsoft executives set up a meeting to discuss the buyout deal.
Apparently, from one of the witnesses, Nintendo’s team just laugh their you-know-whats off. Per former Microsoft third-party relations head Kevin Bachus, “Like, imagine an hour of somebody just laughing at you. That was kind of how that meeting went.”
To commemorate the failed effort — but mainly to celebrate the Xbox’s 20-year anniversary — Microsoft shared the letter it sent to Nintendo. I guess folks can laugh about it now but that must have hurt at the time.
Oh well, the non-deal gave investors added opportunities to hedge the rising dollar with Japan stocks. With NTDOY, astute gamers understand that Nintendo — while it lacks the sheer branding power of PlayStation — has a tremendous following. That was the case in last year’s holiday season and I don’t see any indicators why this year will be any different.
Japan Stocks to Buy: Toyota (TM)
Although I generally have positive sentiment for automotive behemoth Toyota, the Covid-19 pandemic adds a perplexing crosswind to the narrative. In the fiscal year ended March 31, 2021, revenue slipped 8.8% against the prior year’s result. This time around, it only needs a mediocre performance in the fourth quarter to match fiscal year 2020’s tally.
The issue, of course, is the global supply chain. Through no fault of their own, automakers are incurring gross inefficiencies in their sales. Plenty of buyers exists, as evidenced by still soaring demand for used vehicles. It’s just that with the added headwind of the semiconductor shortage, Toyota (and others) are not able to feed demand.
Again, that’s not a problem affecting any one automaker. However, the pandemic may also provide a clear advantage for Toyota. Thanks to decades of superior craftsmanship and innovative manufacturing processes, Toyota has earned a reputation for value and reliability. During an unpredictable period, reliability should command a hefty premium.
Also, the value component is also on everyone’s radar. Once these factors fade away, car valuations should plunge back to normal. But when that happens, Toyotas should retain more of their value, making TM one of the intriguing Japan stocks to buy.
Mitsubishi UFJ Financial Group (MUFG)
One of the riskier Japan stocks to buy, Mitsubishi UFJ Financial Group isn’t exactly a bastion of confidence. Sure, MUFG shares are up nearly 24% on a year-to-date basis. Nevertheless, over the trailing five years, the equity unit is down 13%.
To put this sorry performance into perspective, U.S. counterpart JPMorgan Chase (NYSE:JPM) is up 95% in the same period. And if what the experts say is true — never bet against America — then JPM could continue moving higher.
On the flipside, Charles Schwab noted in late September that Japanese firms feature the best upward earnings revisions trend of all major countries. If so, this should augur well for Japan stocks generally and MUFG specifically.
Japan Stocks to Buy: Panasonic (PCRFY)
If Mitsubishi UFJ was a tough proposition for Japan stocks to buy given the longstanding challenges affecting the underlying economy, then you may want to brace yourself with Panasonic’s inclusion. While a generally popular name over the last several years due to its technologies for electric vehicle batteries, Panasonic suffered one of the unfortunate hallmarks of life in the information age — a cyber attack.
Per a press release dated Nov. 26, Panasonic disclosed that its network was “illegally accessed by a third party.” This breach occurred on Nov. 11, which involved the accessing of “some data on a file server.” However, upon further investigation, TechCrunch confirmed through a Panasonic spokesperson that the breach began on June 22 and wasn’t noticed until Nov. 11.
That’s a lot to digest, but needless to say, investors weren’t happy with the tech firm’s apparently shoddy cybersecurity infrastructure. Over the trailing week, PCRFY is down more than 9%. With the noise from the omicron variant and its global impact, shares could slip further.
Then again, if you have a longer-term outlook, Panasonic remains a leader in EV battery technology. If you want to dial up the risk-reward factor for your Japan stocks, PCRFY might fit the bill.
With most of the popular Japan stocks mentioned on analysts’ reports, it reads like a list of been there, done that. However, you might not have heard about Lasertec, which is unfortunate, because it’s been a rocket ship of a performer. Specializing in the design and manufacture of semiconductor inspection and measurement equipment, LSRCY has been a beneficiary of the computer chip boom.
Uncharacteristic of many other Japan stocks, LSRCY has gained 119% in the year so far. Over the trailing 365-day period, shares have soared 143%. Economists often talk about a lost decade for Japan. Well, there’s nothing lost with Lasertec, except maybe a lost opportunity in buying shares when they were priced in the teens.
Still, from what I’ve read, it’s quite possible that LSRCY still has more room to grow. According to the Bloomberg, “Lasertec Corp. is the world’s only maker of testing machines required to verify chip designs for the nascent extreme ultraviolet lithography (or EUV) method of chipmaking. In 2017, Lasertec solved a key piece of the EUV puzzle when it created a machine that can inspect blank EUV masks for internal flaws.”
Considering the serious geopolitical implications behind EUV-related technologies, LSRCY is a name to watch closely, irrespective of the greenback’s gyrations.
Japan Stocks to Buy: Seiko Epson (SEKEY)
With Seiko Epson, I’m going to leave this list of Japan stocks to buy on a fun note. But to be fair, I’m also leaving on an ambiguous note. Frankly, I’m not sure if the catalyst that drives the fundamental storyline of SEKEF will hold up or not.
But first, let’s back up for a moment. Seiko Epson, but better known these days as just Epson, specializes in computer printers, scanners and projectors (among other business categories) on the consumer electronics side. On the commercial end, the company provides point-of-sale systems, robots and industrial automation equipment.
Some of these businesses seem destined to struggle with relevancy. For instance, printers risk severe commoditization within a generally declining market. Also, POS systems may struggle if more retail transactions move online.
However, Seiko Epson is also known for its watches — and this year, mechanical watches are making a comeback. Among value-seeking horologists, Seiko ranks very highly. Indeed, the New York Times recently promoted the firm’s exceptional craftsmanship.
But will this consumer trend last? And can Seiko watches benefit? If the Covid-19 omicron variant puts a dent in the global economy, Seiko’s value proposition might rise to the forefront.
On the date of publication, Josh Enomoto held a LONG position in SONY. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.