Over the last week I have had several emails from Seeking Alpha readers asking me to use my Levered Free Cash Flow analysis and analyze some Japanese stocks, as they were looking for bargains. Unfortunately, I am an Investment Advisor as well as an Analyst, and I am reserving the bargains list for my clients. But what I can do is show everyone seven Japanese stocks to avoid.
Last month I introduced my “back of the envelope” method of analyzing stocks using levered free cash flow and I am very pleased that it got such a positive response from Seeking Alpha’s readers.
A terrible thing is happening in Japan, and my prayers are with the Japanese people in the hope that the Nuclear disaster does not become a meltdown. My clients and I will be doing our part to help out Japan, by investing in the Japanese stock market when the time is right to do so.
We are currently experiencing what is known on Wall Street as a “Falling Knife" scenario, and until this Nuclear mess is resolved, I am not investing in any new investments for my clients and have actually gone to a very large percentage of cash. "Cash is King" right now, and very few people understand the importance of using cash as a hedge when times get tough-- as they surely are now. At the same time, it is also very important to make a list of stocks to avoid, so as not to end up following the crowd when everyone starts stampeding back into Japanese stocks someday, just like they are currently stampeding out.
I analyzed a list of Japanese ADRs, using my Levered Free Cash Flow (LFCF) analysis, whose data can be found for free on Yahoo Finance’s Key Statistics.
I like to buy stocks at 15 times or less and sell at 30 times their LFCF per share. Always remember that the results detailed below are TTM (Twelve Month Trailing) results and when I do my Mycroft Research Analysis, I always use Value Line’s 2011 OE estimates. Therefore, it is important that when looking at the results in this article to also factor in the growth rates for the company. Before you buy or sell anything, go to your local library and use the Value Line and check out their 2011 estimates for Owner Earnings.
With the introductions out of the way, let us get down to business:
Seven Japanese ADR’s to avoid
Closing Price March 16, 2011 = $49.42
Levered Free Cash Flow = $-1.36 Billion
Shares Outstanding = 451.57 Million
Levered Free Cash Flow Per Share = $-3.01
Price to Levered Free Cash Flow = -16.42
Closing Price March 16, 2011 = $24.90
Levered Free Cash Flow = $1.50 Billion
Shares Outstanding = 4.24 Billion
Levered Free Cash Flow Per Share = $0.35
Price to Levered Free Cash Flow = 71.14
Closing Price March 16, 2011 = $80.41
Levered Free Cash Flow = $- 1.61 Billion
Shares Outstanding = 1.57 Billion
Levered Free Cash Flow Per Share = $ -1.025
Price to Levered Free Cash Flow = -78.45
Closing Price March 16, 2011 = $29.88
Levered Free Cash Flow = $-2.07 Billion
Shares Outstanding = 901.15 Million
Levered Free Cash Flow Per Share = $-2.29
Price to Levered Free Cash Flow = -13.04
Closing Price March 16, 2011 = $15.86
Levered Free Cash Flow = $-80.55 Million
Shares Outstanding = 173.27 Million
Levered Free Cash Flow Per Share = $ -0.46
Price to Levered Free Cash Flow = -34.48
Closing Price March 16, 2011 = $ 87.10
Levered Free Cash Flow = $92.85 Million
Shares Outstanding = 183.51 Million
Levered Free Cash Flow Per Share = $ 0.50
Price to Levered Free Cash Flow = 174.20
Closing Price March 16, 2011 = $20.30
Levered Free Cash Flow = $234.96 Million
Shares Outstanding = 556.61 Million
Levered Free Cash Flow Per Share = $ 0.42
Price to Levered Free Cash Flow = 48.33
So there you have it, a list of seven Japanese stocks to avoid. God help the Japanese people in this hour of need.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Disclaimer: Always remember that these are the results of our research based on the methodology that I have outlined above and in other articles previously published. This research is provided as an educational tool and should not be considered investment advice, but just the results of our research. There are many ways to analyze a stock and you should never blindly follow anyone’s work without doing your own due diligence or by seeking the help of an investment advisor, if you so need one. As Registered Investment Advisors, we see it as our responsibility to advise the following: We take our research seriously, we do our best to get it right, and we “eat our own cooking,” but we could be wrong. Please note, investments involve risk and unless otherwise stated, are not guaranteed. Past performance cannot be used as an indicator to determine future results. Strategies mentioned may not be suitable for everyone. We do not know your personal financial situation, so the information contained in this communiqué represents the opinions of Peter “Mycroft” Psaras, and should not be construed as personalized investment advice. Information expressed does not take into account your specific situation or objectives, and is not intended as recommendations appropriate for you. Before acting on any information mentioned, it is recommended to seek advice from a qualified tax or investment adviser to determine whether it is suitable for your specific situation.