by Fred Fuld III
According to a recent article in Barron’s, there was only one stock market that beat the United States S&P 500, and that was Tokyo’s Nikkei 225.
Although Japan does have some investment risk issues, there are still reasons why investors might consider investing in Japanese companies.
- Undervalued Market: Japanese stocks are often considered undervalued relative to other developed markets. Metrics like price-to-earnings ratios and price-to-book ratios can support this viewpoint, especially compared to the US market. This means you may be getting quality companies at a more attractive price.
- Improving Corporate Governance: Japan has pushed for better corporate governance in recent years. This includes a focus on shareholder returns, transparency, and improved decision-making, making companies more attractive to investors.
- Abenomics Legacy: Economic policies initiated under former Prime Minister Shinzo Abe, known as “Abenomics”, have helped stimulate growth and combat deflation. While the full results are debated, some of the positive effects remain.
- Weak Yen: A weaker yen benefits Japanese exporters by making their products more competitive internationally. This translates to potentially higher earnings.
- Global Exposure with Stability: Many top Japanese companies are global leaders in their industries. Investing in these companies gives you exposure to worldwide markets while having the backing of Japan’s stable political and economic environment.
Japan has many companies that trade on the NYSE in the form of ADRs (American Depository Receipts).
Honda Motor (HMC) is Japan’s second largest automobile manufacturers by market capitalization, which stands at $57 billion.
The company is widely known for its diverse range of products including automobiles, motorcycles, power equipment, and even private jets. They are the world’s largest motorcycle manufacturer and are a leader in engine technology, striving for sustainability and safety initiatives in all their endeavors.
The stock has a trailing price to earnings ratio of 8.8, a forward P/E of 8.2, and pays a dividend yield of 3.4%.
The stock is trading at a 33% discount to book value, has an excellent 0.66 price to earnings growth ratio, and an outstanding price to sales ratio of 0.41.
Earnings per share grew by over 38% for the year.
ORIX Corp. (IX) is a company name that you may not be familiar with. The company offers leasing and loans to small and medium-sized businesses.
It is a major diversified financial services group based in Japan, providing a broad spectrum of financial solutions, including leasing, lending, rentals, life insurance, real estate, and investment banking. With a global presence, ORIX operates across North America, Asia, the Middle East, and Northern Africa.
The stock has a market cap of 24 billion, trades at 12.3 time trailing earnings and 9.1 times forward earnings.
It sells at 8% below book, has an average P/S ratio of 1.24, and a decent PEG of 0.93. The dividend yield is 3.03%.
Of course, there is Sony Group Corp. (SONY), probably the most recognized brand in Japan. This Japanese multinational conglomerate is a powerhouse in electronics, entertainment, and financial services. They are known for iconic consumer products like the Walkman and PlayStation, but their reach extends far beyond. Sony boasts a diverse portfolio that includes film and music production, financial services, and cutting-edge technological ventures like AI and robotics. This global leader constantly strives to deliver innovative experiences and push boundaries, making it a household name synonymous with quality and progress.
The company has a market cap of $105.5 billion, a trailing P/E of 16.6, and a forward P/E of 15.3.
The stock’s ratios are a bit high with a PEG at 2.81, P/S of 1.18, and price to book value of 2.04. The yield is small at 0.64%.
Maybe the land of the rising sun can make your portfolio rise.
Disclosure: Author didn’t own any of the above at the time the article was written.