In a report dated last Friday, Goldman upgraded Sony (Tokyo: 6758) to "buy" from "neutral" and raised its target price to ¥6,200 ($52.06 ADR equiv. at ¥119.1/$1) from ¥5,150 ($43.24).
Reasons for optimism published by the Japanese business press include anticipation of further restructuring (i.e. cost cutting/saving), excessive pessimism surrounding its gaming division, and perceived cheap valuation.
Sony closed Friday at ¥5,210 (remember the market was closed yesterday for a national holiday) and opened today at ¥5,400, traded as high as ¥5,630 ($47.27) and closed at ¥5,550 ($46.60). Its ADRs, which have traded higher since the near year, but flat yesterday, closed at $44.81, making for a 4% discount to its ordinary shares.
Reuters quoted from the two Goldman (Japan) analysts' research note:
We like the stock because ... Christmas sales look strong centring on LCD TVs, and we expect concerns about the battery recall problem and more intense flat-panel TV price competition to be eliminated.
Regarding competition in flat-panel TVs with a specific reference to Matsushita (MC-OLD), Goldman comments:
(Matsushita's) earnings recovery has principally hinged on its flat-panel TV business, and we believe the profit recovery cycle here could be approaching a midpoint. As such, we believe investors could view Sony in a more positive light given its core business interests outside of the electronics business.
Aside from the Goldman upgrade, two factors which helped Sony's stock are further weakness in the yen (eclipsing ¥119/$1) and news that Sony met its PlayStation 3 shipment target of 1 million units in the U.S.
Note back in early October, Goldman downgraded Sony in a reverse of what it did on Friday, but starting from a lower target price ("buy" --> "neutral" and target: ¥5,600 --> ¥5,150).
Over the past year, Sony's shares have turned in a lackluster performance compared to Nintendo (OTCPK:NTDOY). See the chart directly below.
However, over the past month, it is a different story as investors have been taking profits in Nintendo and maybe even putting some into Sony. Its ADRs are up about 10% more than Nintendo's which have been heading south in recent trading. Matsushita is trading higher but lags Sony by about 9%. See chart below.
It is difficult or me to be bullish on Sony. I had actually been considering buying puts for a while now (good thing I didn't).
I am staying away from flat-panel TV related investments. I love the price drops as a consumer, but it must be tough as a manufacturer (and retailer).
In terms of video game consoles, I continue to like Nintendo the best and think recent weakness in its share price can be attributed to expected profit taking. If it were to correct by more than 10%, (it hit an intra-day all-time high of ¥31,200 ($32.75 ADR equiv. at ¥119.1/$1) on Jan. 4 and an all-time closing high of ¥30,900 ($32.43) on Dec. 29.) it might be worth considering. Closing down 0.94% today to ¥28,510 ($29.92), makes for an 8.6% correction. Its ADRs closed yesterday at $30.10.
Disclosure: The author does not own a long/short position in any stocks mentioned in this article.