I've been looking at stocks since I was in high school, back in
the late 1970s. I eventually chose to turn my fascination with
investments into a career. I figured stocks represented the
single-best path to wealth creation, thanks to one simple
statistic: If you hold an investment for an extended period, then
history shows that riskier investments will generate better
returns. This means during any 20-year period going back to the
GreatDepression , stocks always outperformed
, and bonds always outperformed cash. Because I was planning on a
50-year career, I was well prepared for short-term plunges, with
the expectation that stocks would make up lost ground -- and then
some -- during the subsequent decade.
That axiom still applies here in the United States. The S&P 500
has more than doubled in value since 1990, even with the
gut-wrenching past few years.
But for Japan, that axiom is no longer true...
Home to the world's second-largest
, Japan has seen its main stock
, the Nikkei, tumble, tumble again and tumble some more during the
past 20 years. Take a look...
Frankly, it's hard to see how Japan's Nikkei index will ever
revisit the 37,000 mark it reached in 1990 -- at least
in our lifetime. It would take an unimaginable 350% upward move.
Sure, small but fast-growing markets can generate this kind of gain
within a few decades, but Japan is a mature economy with far too
many demographic and fiscal headwinds. And yet, for
holds some tremendous bargains. These bargains involve companies
that are thriving in the global economy, even if their home
makes life difficult for exporters.
Focus on banks
While most global banks were making loans to debt-addled
governments in Europe, Japanese banks steered clear and will not
likely need to take write-downs if Europe goes into a deep funk.
This is hardly an endorsement for Japanese banks, but they do
possess a lot less
than their western counterparts. Meanwhile, they are strikingly
cheap by a range of measures.
Japan's largest bank (in terms of assets),
Mitsubishi UFJ Financial Group (NYSE:
, hit an eight-year low this week (Nov. 27). Though it was once
valued at more than $200 billion, it is now valued at just $57
billion. Meanwhile, this bank generated an eye-popping $49 billion
free cash flow
in fiscal (March) 2011, according to Thomson Reuters. Mitsubishi
UFJ Financial has one of the premier providers of financing for
intercountry trading transactions, providing shippers,
manufacturers and other financial-services firms with logistical
capital. In the first six months of the current
, the bank posted $9 billion in
, or about $18 billion when annualized. This means it trades for a
little more than three times annualized income.
Investors interested in the Japanese banking sector should also
Mizuho Financial (NYSE:
Sumitomo Mitsui Financial Group (Nasdaq:
Nomura Holdings (NYSE:
. These bank stocks also hit fresh lows this week, erroneously tied
to the widening crisis in Europe.
Toyota: down, but not out
Toyota Motor (NYSE:
remains the world's largest automaker and, after shedding $100
since 2007, the stock is now also a bargain. To be sure, the weak
global economy has crimped financial results during the past few
years. Toyota generated $47 billion in
in fiscal (March) 2007 and $48 billion during fiscal 2008. This
figure has slid to just $20 billion in each of the past two years.
Yet it's important to remember that Toyota's engineering department
may be the most innovative in the industry. For example, the
company is on track to sell more hybrids in 2011 than the rest of
the auto industry combined. Look for a series of Prius spin-offs to
hit global showrooms in coming quarters, which should help the
company maintain this lead. Meanwhile, Toyota is quickly boosting
its manufacturing presence in lower-cost countries and shedding
capacity in Japan. That's why analysts think
earnings per share (
can rise more than 100% in fiscal (March) 2013 to about $6.25, even
with sales projected to grow less than 10% in the same period. In
trade at levels seen back in 1999.
The No.2 printer in the world
For all its troubles, investors note that
printing division is a huge source of profits. Right behind HP in
the global printing business is Japan's
, which can boast its own impressive financial profile. Free cash
flow topped $5 billion in 2010 on $48 billion in sales. Few
hardware-focused companies can generate free cash flow margins that
To augment its position in printers and cameras, Canon has been
targeting the high-end of the cinema camera market while quickly
increasing presence in the medical-imaging market. The weak global
economy is currently impeding growth, so sales are likely to
increase less than 5% in 2011 and 2012. But make no mistake, this
is another long-term winner with fortunes tied to many markets --
not just Japan. With shares hitting a
this week, it's time for a fresh look at this stock.
Risks to Consider:
These Japanese companies face rising competition from rivals in
other parts of Asia, so they will need to readjust their
manufacturing bases and other cost inputs in order to remain
Action to Take-- >
Perhaps the greatest appeal of Japanese stocks right now is the
rising purchasing power of many neighboring Asian countries. Rising
living standards in the region will most likely lead to higher
demand for Japan's goods and services. This isn't to suggest that
Japan is on the cusp of a robust economic revival, but only notes
that the stocks of major Japanese companies such as the ones I
mentioned above have become too cheap in light of their
still-strong global footprints and could be set to rebound in a big
-- David Sterman
Disclosure: Neither David Sterman nor StreetAuthority, LLC hold
positions in any securities mentioned in this article.
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