Reap the Benefits of Japanese Diligence (SNE, HMC, HIT, MTU, NSANY)

Tony Sagami (Harvest Advisors) submits: I'm truly impressed with what I'm seeing in Japan now. And that's not simply because it's the country where I was born.

It's because a decade of depression and tough times have primed Japanese companies, especially tech companies, for an impressive comeback. Martin Fackler's article in the New York Times this week, "New Optimism About the Japanese Economy After a Bleak Decade," brings my point home better than I can:

"College graduates face the best job market in a decade, and wages are rising again. The lead stock market index has doubled in value in two years. Corporate profits are the highest in recent memory. And for the first time since 1990, land prices in Tokyo are up.

"Could it be that Japan, long the sick man among major global economies, has finally recovered?

"This is, after all, the country where the words "gloom" and "malaise" have been used for so long that many Japanese have come to view them as facts of life ...

"But this time, most economists and analysts agree, the recovery seems to be real, its roots extending through the Japanese economy. After more than a decade of working off excessive debt, bloated payrolls and overbuilt factory capacity, Japan seems to have addressed its bubble-era problems and emerged leaner and more competitive, the economists say ...

"Companies are investing heavily in new technology ... For the last 12 years, Japan has spent more on research and development as a percentage of the economy than any other major industrial nation, according to the Organization for Economic Cooperation and Development."

What's driving Japan's new, emerging boom? Part of it is the fact that Japan's partnership with China is so close and so capital intensive.

But that's only half the story.

The other half is that Japan's new generation is avoiding most of the blunders and extravagances that are still plaguing many U.S. companies.

The attitude in Japan today reminds me - to some degree - of the spirit that my parents brought me up with:

Debt avoidance.

Hard work.

No luxuries and no nonsense.

HERE'S HOW U.S. INVESTORS CAN REAP THE BENEFITS ...

Think Global: Expand your investment universe to include Asian stocks. A good place to start your search is with foreign stocks that are listed on the NYSE, as American Depository Receipts (ADRs). For example, you can buy shares in companies like Honda (ticker: HMC), Hitachi (ticker: HIT), Mitsubishi (ticker: MTU), Nissan (ticker: NSANY), and Sony (ticker: SNE).

Sony, in particular, is a bellwether for the Japanese technology sector. Its stock, which declined steadily from March through late October, has now surpassed its September high, a first key step before the next leg up, possibly to the 40 - 42 area.

Also Think Small: The best opportunities are usually found in stocks that you've never heard of. That's doubly true when you're talking about foreign countries.

Sony, for example, is about to revolutionize the DVD world with its new Blu-Ray Discs, or BD-ROM, but the company is so large that even a home run won't have a significant impact on its bottom line.

In contrast, companies like Nippon Electric Glass -- the world's third largest manufacturer of LCD glass, used for high- definition screens -- is small enough to make a mountain of money from that new technology.

Think Picks and Shovels: Most of my peers are looking for the next new, red-hot, super-sexy technological breakthrough. Not me.

Like Levi Strauss, I'm convinced that the best tech profits are going to be found in companies that provide the electronic equivalent of picks and shovels for risk-taking, hard-working innovators.

And many of the most profitable pick-and-shovel providers are to be found in Asia because of the cheaper wages and lower business costs. For example, Inventec Appliances is the biggest supplier of iPod components to Apple Computer and is making money hand over fist.

I'm not suggesting that you should completely abandon U.S. tech stocks. A few American companies, such as Microsoft, ATI Technologies, and Electronic Arts, could offer some good growth at the right time.

But if you want the 10-baggers that Peter Lynch used to talk about, take a virtual trip across the Pacific.

And always remember: We don't want companies that depend on luck or spend on luxury. To greatly improve your chances of reaping big profits and large yields, we want solid evidence of fertile land, good technology, hard work, and even past hardships.

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