Saxo’s Head of Wealth Management Greater China
Summary: Japanese stocks are up +100% since March 2020. The rally in Japanese stocks in 2023 has been broad based. What are the high-quality stocks we should investigate? High return on invested capital (ROIC) companies can be a good way to start with.
The Japanese stock market has been one of the bright stories this year UP +29% relative US stocks which are up +15%.
What's interesting about Japanese stocks is the rally has not be by singular sectors or themes (like the US) but by rather a more broad-based rally.
Japan has been put on the map by global investors since Warren Buffett’s Berkshire Hathaway made their earlier investments in Japanese commodity trading firms. Buffett disclosed in August 2020 that he acquired slightly more than 5% in each of Japan's top five trading houses: Itochu Corp, Marubeni Corp, Mitsubishi Corp, Mitsui, and Sumitomo Corp and today (June 19th) disclosed he has RAISED his stakes to 8.5%.
Furthermore, the rising tensions between the US and China have also put Japan on a path to become a more important manufacturer of physical goods for Western companies to reduce their supply chain risks.
Japan was known for decades to be a hunting ground for DEEP VALUE stocks. Fast forward to Japan in 2023 and investors can still go on deep value hunting, but this segment is what Warren Buffett would call looking for cigar boxes with maybe one last cigar puff.
It is more interesting to hunt for HIGH QUALITY companies and a good way to start is to isolate companies with a high return on invested capital (ROIC) as that is typically a signal of a strong business model and product.
"Return on invested capital" (ROIC) is a calculation used to assess a company's efficiency in allocating capital to profitable investments.
14 Japanese companies with an ROIC above 20% and a market value of above US$5 billion is listed below:
One stock worth investors looking out for is Advantest (6857 JP) which is up +132% in 2023. The company is Japan’s leading manufacturer of automatic test equipment for the semiconductor industry, and manufacturer of measuring instruments used in designing, production, and maintenance of electronic systems such as fiber optics and wireless communications equipment. In a country known for low growth and inflation since the late 1980s, Advantest is a rare growth story that has grown both its revenue and profit margins strongly.
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