This article is a website version of our weekly FREE Best Ideas Newsletter sent on 15.08.2023. Sign up here to get it in your inbox every Tuesday.
Japan is dirt cheap!
If you've only read some of my emails you have most likely heard that Japanese stocks are extremely undervalued.
That's also the reason why the Quant Value newsletter has been recommending so many companies there - more on that further down.
In this email I'd like to tell you more about why stocks in Japan are so cheap and why it's a great time to invest.
I'll also include two VERY interesting investment ideas.
Full disclosure
I have an investment both in Japan Petroleum Exploration Co. Ltd. and Inpex Corporation but can of course not say if they are appropriate for you. Therefore, please do your own research or speak to your financial advisor should you find these companies interesting.
The investment situation in Japan
Why Japan is a compelling investment destination is best summarised in an investment letter from the great fund manager Orbis.
In their Quarterly Commentary - Orbis Japan Equity on 30 June 2023 they describe the current investment in environment in Japan as follows (my summary);
- Japan has been undergoing changes in terms of corporate governance and shareholder focus over the last few years. But till now progress had been slow.
- Japanese companies historically had a no to low shareholder focus. They earned low returns and hoarded cash instead of returning it to investors.
- Efforts to improve the situation began after Shinzo Abe's election, with initiatives like the Ito Review in 2014, the Stewardship Code in 2014, and the Corporate Governance Code in 2015. These were all aimed to improve investor engagement, governance, and transparency.
- The reforms worked, leading to commitments to dividend growth, share buybacks, and greater investment discipline.
- In 2023, there has been BIG positive development with the Tokyo Stock Exchange requiring companies to “properly identify the company’s cost of capital and capital efficiency, evaluate those statuses and its stock price and market capitalization…”. The most important point was at the end of the announcement, where companies must “…disclose policies and specific initiatives for improvement… Especially for companies that clearly need to improve, such as those with a PBR (price-to-book ratio) consistently below 1x.”
As you see these the overall environment is getting a lot better and here is how you can profit from it.
Japanese investment idea
In the above report Orbis mentioned two very attractive Japanese investment ideas (emphasis mine):
Take oil and gas companies, Japan Petroleum Exploration (Japex) and Inpex, for example. Together, they make up close to 15% of the Orbis Japan Strategy. Both trade at a steep discount—around half their book value —and 5-6 times earnings. In our view, neither are businesses that have fundamental issues that justify these lowly valuations.
Japex currently has 85% of its market value sitting in net cash (85%!), and 50% in investment securities, much of which is in Inpex, which itself we think is undervalued. As a result, we are paying nothing for Japex’s core business. Inpex is highly profitable. Last year, the company pumped out cash flows equal to 20% of its current market valuation, powered by its liquefied natural gas project, Ichthys, which had been shunned by the market after years of delays. In our view, both companies could easily improve their valuations by using either their enormous cash pile or their ongoing cash generation to fund higher dividends and increased buybacks.
Since the report was published, the stock prices of both increased, but they also reported half year results which were largely positive despite lower oil and gas prices.
As I mentioned, after doing additional research, I invested in both companies. Again, please do your own research.
Quant Value newsletter update
As mentioned, the Quant Value newsletters has been finding a lot of really undervalued companies in Japan, more undervalued than elsewhere in the world.
We currently have 21 Japanese companies in the newsletter, with an average return of 17.6%.
If these ideas sound interesting, you can get more information here: Your Treasure Map to Europe, Asia, and North America's Hidden Gems!
Shareholder Yield Letter update
Remember I mentioned that the UK stock market is also undervalued this is also reflected in the Shareholder Yield Letter’s portfolio. Seven of the 16 companies (44%) are listed on the London Stock Exchange.
These companies have an average shareholder yield of over 10% add pays a dividend of 5.5%. To refresh your mind shareholder yield is the sum of dividends as well as shares bought by the company.
If this sounds like the kind of companies, you would like to invest in you can find more information here: Invest big, win bigger with our market beating large-cap strategy!
Your, helping you get the highest return analyst
Tim
PS To find great companies that exactly meet your investment strategy right now click here.
PPS It is so easy to forget, why not sign up now before you get distracted?
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