Japan's Most Undervalued Stocks

Since 1996, The Applied Finance Group has excelled at identifying mispriced securities and helping our clients take advantage of such mispricings within the US markets. Over the last few years, AFG has been working on expanding our framework internationally to help our clients identify solid long-term equity investment opportunities on a global scale. Our global research site, AFGViewGlobal.com has coverage on over 30,000 companies with back-test results proving that the same group of variables that have proven successful on a domestic level are quite successful at identifying winners and losers all over the world.

Below is a look at the 10 most undervalued stocks in the Nikkei 225, the most widely quoted average of Japanese equities within the Tokyo Stock Exchange (TSE). According to AFG’s valuation model these companies look to be attractively priced and have considerable long-term upside. We will monitor these 10 stocks through time and compare them against the overall index and provide our performance relative to the overall index just as we have done over the last 7 months with our US Buy recommendations (see ValueExpectations.com buy/sell spread results here).

click to enlarge

10 Most Undervalued Stocks - Nikkei 225

AFG's default valuation is a great place to start when looking for potential equity investments as our valuation techniques have proven successful through time at identifying mispriced securities and helping our clients identify investment opportunities resulting in outperforming their chosen benchmark.

AFG's Valuation Model – Using AFG’s modified discounted cash flow model to measure the intrinsic value of a firm compared to its peers. AFG's Value Score - A score which represents the ranked percent to target (deviation between stock’s current trading price and AFG’s current default target price) or attractiveness (upside) relative to the universe. A Value Score of 100 is the most undervalued and 0 is the most overvalued company in the universe.

The table below shows the returns of each country broken down by AFG valuation Top/Bottom Half companies vs. the entire universe. AFG's default valuation works well across sectors, styles, industries and even different countries. Check out the spreads between Top and Bottom Half companies based on AFG valuation.

Annualized Returns - Valuation Rank

Source: AFGView Databases

World Return is the weighted US$ return for the 17 countries shown. It is calculated by converting each country's return into US$ returns and weighting them at its beginning period country market caps.

*Canada data begins 6/30/2004, Taiwan data begins 2/28/1995

Equal Weighted, Monthly Re-balanced Total Returns.

Comments

[Henry Buttal:]

Interesting that Sweden, of all places, has done so well. Perhaps it is consistency with substantially less volatility.

Since the correlation between most of these countries is no-where near 1, this chart would appear to make a strong argument for country and sector rotation vs just the buy and hold time in the (U.S.)market strategy.

Jun 30 03:45 PM

[Ryu Mei Co:]

Between NTT, DoCoMo, and Softbank. I will put my money on Softbank. DoCoMo has the most cellphone subscribers, but Softbank has been signing up more and more subscribers from NTT and DoCoMo customers. Moreover Softbank uses better cellphones, more innovative cellphones (like iPhone), better service and quirky advertisement to attract customers.

There are more and more housewives preferring electric stove over gas stove. In addition, the recent gas and oil shock caused many Japanese to go "Eco" brand. Thus, Gas usage will drop. Osaka Gas may seem attractive, but I wouldn't buy this one either. Moreover, Japan is a fastest aging nation, and therefore the commodities demand will drop.

Since Japan is an aging nation, Takeda Pharma and Health Care sector are the only sector that I will bet my money on.

Jul 03 10:44 PM