Major disasters tend to lead to over-selling which is a perfect opportunity for value investors to scoop up undervalued stocks that show strong fundamentals. But, buyers beware.
Panasonic (PC) and Sony (NYSE:SNE) are substantially undervalued but their fundamentals are unimpressive. They run highly capital-intensive businesses and fail to produce a good return on their investments. Canon (NYSE:CAJ) is a different story. They aren't as undervalued as the two former companies but they post strong fundamentals that considerably outshine the others.
As the Japanese manufacturers and supply chains recover, all three stocks should be able to regain investor’s confidence but Canon is the most prepared for an impressive comeback.
Panasonic is a manufacturer of electronic and electric products for consumer, business and industrial uses.
Panasonic has forecasted that full-year profit will drop 59 percent this fiscal year after Japan’s March 11 earthquake. The damage to factories and suppliers would cut sales by 160 billion yen and would last until September. However, Panasonic’s troubles don’t quite end there.
An assessment of Panasonic yields mixed results. They run a highly capital intensive business with 497% of profits spent on capital expenditures and they have seen poor cash return on invested capital with only one positive Cash ROIC fiscal year in the last decade. Their net income margin remains razor thin but they have managed to create a positive cash flow 7 out of the last 10 years and have delivered substantial dividends (138.75% Dividend Yield in 2010).
Current Price: 11.51
Growth Price (DCF): 24.31
Undervalued by 111.17%.
Vuru Grade: 50.52/100. Find our full report here.
Sony develops, designs, manufactures and sells various kinds of electronic equipment, instruments and devices for consumer, professional and industrial markets.
Sony has recently hit a 52-week low as a result of the earthquake and network-intrusions. Value investors have been looking at Sony since these events are one-time in nature and their stock is cheap.
Sony shares many of the same fundamental deficiencies as Panasonic; yet they also offer some slight improvements in their fundamentals. They are twice as capital intensive as Panasonic but have seen a greater Cash ROIC (8.17% in 2010). They have historically been able to avoid losses while maintaining a net income margin around 1 to 2 percent. Finally, Sony has also continually paid out dividends and bought back stock.
Current Price: 24.92
Growth Price (DCF): 76.01
Undervalued by 205.00%
Vuru Grade: 52.38/100. Find our full report here.
Canon is a Japan-based manufacturing company that provides products for the office, consumers and various industries.
Canon has reported that their current year profits ($4.6 billion) will be higher than forecasted due to the rapidly recovering supply chains in Japan that have nearly been restored to pre-quake levels. This has allowed Canon to increase production in its Japanese factories.
Canon appears to be the best candidate for value investors due their valuation and strong fundamentals. Canon surpasses Sony and Panasonic in terms of the Cash ROIC (25% in 2010), TL-to-TA (0.34 in 2010) and has continuously grown their free cash flow from 97.38 B in 2001 to 545.26 B in 2010. Moreover, Canon paid a 215.80% Dividend Yield in 2010 which exceeds both companies.
Current Price: 46.18
Growth Price (DCF): 75.40
Undervalued by 63.27%
Vuru Grade: 82.95/100. Find our full report here.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.