Deep Value Situation in Toyota

| About: Toyota Motor (TM)

Will we ever get a chance to purchase Toyota (NYSE:TM) for a price to book ratio of just over 1x or a price to sales ratio of just under 0.60x. In fact, Toyota is trading at the same level now as what it was some 15 years ago on the TSE. I put forward these valuation metrics first because I believe that they highlight just how ridiculously cheap Toyota is at present! You may argue that these two valuation metrics are rather elementary and overly simplistic. Yes this is probably true but I believe that if a stock is genuinely cheap it should stand out as being so using simplistic measures.

Below is the price to book and price to sales ratios of Toyota. This is as far back as I could ascertain. Why this is all Bloomberg had is beyond me. In any event, I cannot imagine the P/B and P/S ratios being any lower than they were at the depts of the GFC (which are not materially below current levels).

Price to book Ratio Toyota (2001-present)

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Price to Sales Ratio Toyota (2006-present)

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It was interesting to note that just prior to the earthquake Toyota's stock price was recovering rather nicely and it almost traded at a multi-month high. This suggests that there was probably nothing fundamentally wrong with Toyota. Accordingly, the earthquake should prove to be a temporary set-back.

Toyota Motor (NYSE)

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Will Toyota breakout to the upside again? Well, much depends on what happens with the direction of the broad stock market in Japan (the TOPIX). I have discussed on numerous occasions that I believe there is very limited downside in Japanese equities (with a P/Book ratio of 0.99x on the TOPIX how much more downside could there possibly be). Accordingly, one should be using any weakness to pick up large global blue chip stocks, and Toyota is the first on my list.

I am buying TM on Tuesday with a stop at 69.

Disclosure: I am long EWJ, JOF.