Investors worrying about U.S. equity markets because of sky-high valuations and earnings multiples have no shortage of examples of drastically out-of-kilter valuations. Beyond Meat (BYND) which uses pea protein to create imitation vegetarian meat is worth more than the global pea market.
Carvana (CVNA) which is a used-car sales platform that boasts a nine-story car vending machine (in Tempe, Arizona; one of 24 across the country) is worth more than a handful of the top vehicle manufacturers, including Ford, Honda or Volvo.
Even Airbnb (ABNB), which is primarily a rental platform without real estate holdings, is worth more than HIlton and Marriott combined.
As much as these valuations seem out of kilter, they are nothing compared with the Japanese stock bubble that peaked in the late 1980s when Japanese stock and property markets ruled the world much as America does today. The Tokyo Stock Exchange (TSE) listed stocks represented more than half of the total value of world stock markets.
In 1989 Tokyo real estate sold for as much as $139,000 a square foot – 350 times the value in Manhattan. At that price, Tokyo’s Imperial Palace was worth more than all the real estate in California. The Nikkei 225 index tripled in just four years, from 13,000 at the start of 1986 to nearly 39,000 at the end of 1989. Now the Tokyo Stock Exchange’s 2,190 listed companies are worth less than the combined value of Alphabet, Apple, Facebook and Amazon.
But Japan isn’t a lost cause; in fact, there’s plenty of value in the Japanese stock market. If you would like to increase exposure to Japan, there are a couple of ways to go.
One is to let the Japan specialists do the buying. A good choice, with a low expense ratio, is the WisdomTree Japan Hedged Equity Fund (DXJ), which is designed to neutralize the fluctuations of the Japanese yen against the dollar.
A rising star is the WisdomTree Japan SmallCap Dividend Fund (DFJ), an ETF that does not hedge currency swings but has a good record and a highly diversified portfolio.
Another way to go is with high-quality Japanese stocks. Here are two ideas.
2 Japanese Stocks for Contrarian Investors
Rakuten (RKUNY) – The Amazon of Japan
Rakuten is a well-diversified conglomerate with tentacles throughout Japan that has plenty of running room for international expansion. Many of you may not have heard of Rakuten but I assure you that very few Japanese people are not part of its ecosystem in multiple ways. Its loyalty membership program is more than 100 million strong and it is Japan’s #1 internet bank, #1 credit card and one of the country’s leading travel platforms.
Rakuten’s core business is as an internet sales platform akin to Amazon. The company’s market share in Japan is about 25%. Next comes Yahoo Japan, at around 15%. Rakuten already has a large number of e-commerce cloud sites built with high-speed fiber connections in Japan. In short, Rakuten is a growth conglomerate with multiple drivers and a sterling balance sheet with cash and short-term investments worth roughly $12.5 billion.
Fanuc (FANUY) – Robots Making Robots
While you have seen a multitude of stories about the rise of robots in manufacturing as well as everyday life, you may not be aware of Fanuc (FANUY), a Japanese blue chip with zero debt, a sterling reputation, and a storied past.
Headquartered in the shadow of Mount Fuji, Fanuc is the world’s leading manufacturer of computerized numerical control (CNC) devices that are used in machine tools and also serve as the “brains” of industrial robots. Fanuc claims to be the only company that uses robots to make robots.
Fanuc, whose name is an acronym for Fuji Automatic Numerical Control, has been a world leader in robotics since the early 1970s. It was founded as a wholly owned subsidiary of Fujitsu in 1955 after that electronics giant decided to enter the factory automation business. Today Fanuc is as global as it gets with more than 240 joint ventures and offices in over 46 countries with a commanding 65% share of the world market. Use of industrial robots has allowed companies like Panasonic to run factories that produce 2 million plasma television sets a month with just 25 people. Finally, Fanuc offers investors a pristine balance sheet with zero debt and more than $7 billion in cash.
I suggest you shift some capital to Japanese stocks, which are cheap and finally in an uptrend after too many down years.
Do you own any Japanese stocks in your portfolio?