Bellwether Stocks to Gauge the Impact of Yen Manipulation on Their Sectors

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 |  Includes: AAPL, CAT, CSCO, CVX, GS, IBM, MSFT, PG, WMT, XOM
by: Investment Underground

The yen has risen sharply since a 9.0 earthquake struck Japan, destroying a large chunk of the nation’s infrastructure. It is that destroyed infrastructure, in part, that will likely necessitate the repatriation of large amounts of yen. Speculators who have broadly adopted this thesis and tried to cash in have pushed the currency sharply higher.

This morally dubious move by speculators to buy into the currency has sent the yen to Post-War highs against benchmark currencies. The disruption this could heave onto a nation already in turmoil was at the heart of the decision by G7 central bankers who coordinated to sell billions of dollars worth of yen in order to counteract its sharp appreciation.

What does this mean for you, a U.S. equities investor? Well, it’s a dominos world not only for Kissinger, but for stocks as well. When this unprecedented coordinated effort was announced, stocks in Tokyo moved higher off of their 10% loss for the week and as the sun crept up across the globe, so did stocks, waking up from Moscow to New York. When we’re speaking about broad strengthening of markets, it is a good time to look at economic bellwethers. We recommend assessing the following U.S. companies to gauge their representative sectors moving forward.

Microsoft (NASDAQ:MSFT)

Trading at 24.80 with a forward P/E of 9.0 Microsoft defined what it was to be a new school blue chip so much so that calling it new school today will get you odd looks. It has been trending lower for the past couple of months, but didn’t react sharply to news out of Japan. Currently analysts, Oppenheimer among them, have price targets for the company as high as $36/share, giving it plenty of room for upward movement.

Apple (NASDAQ:AAPL)

Currently trading at $330/share, nearly $100 dollars below analyst estimates of fair value, Apple continues to dominate the market with an unparalleled brand identity. Full disclosure: I was at the Mac Genius Bar today and, yes, it was genius (or I’m inept; equally likely). It has a reasonable forward P/E of 12.4 and for the past few months, most analyst ratings I’ve seen have reiterated buy or outperform ratings. Apple looks attractive as a stock and on the desk (though I don’t have one on mine, to be clear).

Cisco (NASDAQ:CSCO)

Citibank recently forecast a return to IT growth rates to 1.5-2xs GDP growth. Cisco should be pleased as the world’s largest purveyor of data networking equipment. It is trading relatively low at 17/share while analysts are forecasting fair value nearer to $30. It’s forward P/E of 9.8 also suggests it is currently attractive for investors. With a coordinated effort to stabilize Japan and the world’s currently meek voiced economic momentum it is reassuring for the analysts at Citi as much as it is for those who decided to lever their portfolios to this trend through Cisco.

International Business Machines (NYSE:IBM)

IBM was trading just above fair value for the stock, in the mid-160s, just prior to events in Japan. Now it has dipped, but started to bounce off its low a few days ago. Currently trading at $155/share and with a forward P/E of 11, IBM is set to re-touch its not-so-far-off fair value price of $162 very quickly.

Exxon-Mobil (NYSE:XOM)

With some upward movement before it hits commonly asserted fair value at $90/share, this major energy player, currently trading at just under $81/share, is set up well in its industry. It has a healthy P/E of 13 that syncs with its healthy operations. Known for efficiency, Exxon is trading slightly below where it was March 11, the day of the Japanese mega-quake, but has bounced back to nearly cover the losses of that minor dip.

Chevron (NYSE:CVX)

Chevron is trading near where analysts give it fair value, right at $103 a share. It has a forward P/E of 8.6, which is positive given the competition for resources from its state-backed competitors. Commodities headwinds will clearly be a boost, though. Five days on from the onset of disaster in Japan the stock has moved 3 percent higher.

Walmart (NYSE:WMT)

While present in Japan, it is far from its most crucial market and in the words of a Moody’s analyst, it won’t a have material impact on the company’s operations. Currently trading at $51.52/share, it hasn’t deviated by more than 2% from this price in the past 20 days. Its forward P/E of 10.6 lends itself to the view that it should climb higher to reach fair value in the $60/share range.

Procter & Gamble (NYSE:PG)

Purveyor of all things domestic, P&G has moved lower since events in Japan, but not in a marked way. Additionally, the stock has moved up in recent days with the markets as they react to stabilizing efforts undertaken on Japan’s behalf. Currently trading at $60.60/share with a forward P/E ratio of 13.9, P&G is favored by analysts to move toward a consensus target price in the mid-70 dollar a share range.

Caterpillar (NYSE:CAT)

A core infrastructure play and a company renowned for its management efficiency, Caterpillar will see a spike in demand resulting from a need to rebuild large swath of Honshu Island’s infrastructure. It has no direct tie as such, but the amount of rebuilding will be such that it should move the infrastructure sector higher and no one is as levered to that sector and theme as Caterpillar. Events out of Japan have sent the stock above its fair value price in the high-90s to finish the trading week at $105/share. With a forward looking P/E at 13.2 it seems confirmed for Caterpillar to continue to ride the waves of global events forward and upward.

Goldman Sachs (NYSE:GS)

The golden boy of finance finished the week at nearly $160/share and maintains a forward P/E of 8.7. Not too shabby. This is after a dip into 154/share territory that followed the markets down and then up again on Japan-centric events. Still sitting pretty Goldman still has another $20/share to gain before it hits fair value territory.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.