Investing Abroad: Japanese Stocks
Matthew is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Diversification is the best defense against global uncertainty. Living abroad, that is one truth that I have come to appreciate more and more. With so much uncertainty in Europe and the rest of the world, we sometimes forget that truth. In these times of uncertainty, many investors seek the safety of good US companies, avoiding the rest of the world completely. Diversification means more than just different sectors of the US economy. Diversification also means foreign companies that will protect your portfolio from domestic risk.
The simplest way for individual investors to achieve adequate international diversification is through an ETF. The PowerShares FTSE RAFI Developed Markets ex-U.S. Portfolio or the PowerShares FTSE RAFI Emerging Markets Portfolio will give investors sufficient global diversification, with a decent dividend to boot. For investors looking for a more hands-on approach, below are five Japanese companies that might be suitable for a more globally diversified portfolio.
1. Kubota Corp. (NYSE: KUB) is a global manufacturer of farm and construction machinery. The John Deere of Japan, if you will. As the Japanese John Deere, the two companies obviously compete in many of the same segments (tractors, combines, excavators, loaders, engines, etc.). Though about a third of the size of Deere, Kubota does hold the number one market share position in a number of segments (such as mini-excavators). Kubota also has segments that do not compete with John Deere, like air conditioners, vending machines, pipes, sewage treatment and water purification.
Kubota is a play on the rebuilding process here in Japan after the absolutely awful tsunami last year. Although more than a year has passed, rebuilding thus far has been slow going. When it does accelerate, Kubota will be one of the biggest beneficiaries in the construction space (since if you happen to see a piece of construction machinery on a worksite in Japan, it is likely a Kubota machine).
2. Toyota Motors (NYSE: TM) is the world’s largest automaker, renowned for its quality and reliability. The recalls of 2009-2010 have definitely hurt that world renowned reputation, though Toyota has recovered since then. That was until the destructive and deadly tsunami that caused disruptions in their parts supply chain, resulting in plummeting car production and sales. The strength of the Japanese yen has not helped matters much. Since 2007, the yen has risen against the dollar by nearly 60%. Since 2008, the yen has risen against the euro by more than 75%. This has significantly hurt the probability of Toyota’s exports. Multiple efforts by the Japanese central bank to weaken the yen have proven to be completely ineffectual, as global investors worried about a collapse of the euro currency continue to flee to the relative safety of the Japanese yen. Despite this, when/if the global economy recovers and investors no longer see a need to flock to the yen for safety, Toyota should do very well.
3. NTT DoCoMo (NYSE: DCM) is the number one wireless service provider in Japan, with almost half of the country’s market share. Although they hold nearly 50% of the market, that percentage is down significantly from that of a few years ago. Increased competition from Japan’s number two and three wireless providers continues to take customers away from DoCoMo.
DoCoMo does have a number of investments abroad to diversify itself away from the Japanese wireless market (although they have not been very successful with foreign investments in the past). One of their biggest current foreign investments is their stake in India’s Tata Teleservices. DoCoMo is also a leader in mobile payment services in Japan, something that many US carriers have been attempting to do for some time with little success.
4. Mitsubishi UFJ Financial Group (NYSE: MTU) is Japan’s largest holding bank and the world’s second largest holding bank by total assets (second only to Deutsche Bank, and not second by much). UFJ is also the bank I currently have an account with (through Tokyo-Mitsubishi UFJ, one of the countless banks they own). And I must say… I do not like the service very much. I will likely be finding a new bank sometime in the near future. But this is not about me and the company is much more than just one bank, but I also do not like the company or the stock at all.
Mitsubishi UFJ is one of the "too big to fail" type of institutions, which is very good news for UFJ, because they are indeed a big failure of a bank. After a continuous decline in share price for… oh, the majority of my relatively young life, one could easily come to the mistaken conclusion that the stock has finally bottomed. That after 20 years of declines, it could not possibly fall any lower. And maybe it has bottomed. Maybe this is the perfect time to buy. But that is not a bet that I would personally take.
5. Wacoal Holdings Corp. (NASDAQ: WACLY) is the small-cap, more speculative company of this group. Wacoal is a designer of women’s fashion apparel, particularly underwear, lingerie and sportswear. Now, I know absolutely nothing about women’s fashion. And like the stereotypical male character from a '90s sitcom, I find clothing shopping in general to be one of the most boring things in the world to do. But what I do know about fashion apparel is the old complaint about investing in these companies: What’s popular and fashionable today can easily become unpopular and unfashionable in a very short about of time. This is a fickle business. Although one of my Japanese female acquaintances tells me that Wacoal’s sportswear is currently in fashion and their other products are apparently popular with Japanese female celebrities. So you have that. And to go along with the speculative nature of this company, Wacoal is also in the process of increasing their presence overseas.
Are these five Japanese companies suitable for your own diversified portfolio? That I cannot say. Use this list a good stepping-off point for your own research into good companies in Japan and elsewhere in the world. Please contact a tax professional about the suitability of international companies in your portfolio.
WhichStocksWork has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. If you have questions about this post or the Fool’s blog network, click here for information.