I mentioned a few weeks ago that I was beginning to invest in Japanese stocks with a small percentage of my portfolio (currently about 8% spread in 4 different stocks). There are several downsides to investing in Japense stocks- namely, it’s really hard to dig through the financial statements, look through footnotes, figure out comps to compare to, read through MD&A and look for competitive advantages, etc. That’s offset by some advantages; namely, that several Japanese stocks over discounts to asset and book values that are completely unheard of on the American stock market (in addition to decent dividend yields and, for many, a history of consistent, if modest, profitability).
I’m currently following several of these stocks. The first I’m going to mention is Natoco (4627). You can find the company’s website here and their latest financial report here.
What attracts me to Natoco is very simple: they trade for a discount to their net cash per share and a huge discount to their NCAV and book value. They’re also reporting decent operating profits and has done so consistently for the past ten years. In addition, the company currently sports ~2.3% dividend yield. Finally, they have an English page (though without their translated financials) where you can see a description of what they do.
So just how cheap are they?
They’re trading for ~695 yen per share. This is against net cash per share of 715 yen per share, NCAV of 1025 yen per share, and BV of almost 1620 yen per share. That is serious, serious asset protection.
Now, normally I’d start by investigating the business and describing why I didn’t think the company deserved to trade for such an extreme discount to book.
But not this time.
The fact is with Japanese companies I’m so unaware of the culture, politics, regulations, etc., and have such littel grasp on their financials and where all the “bodies are buried” that I’m simply unable to do that with these Japanese companies.
Instead, I’m relying on one simple thing- a business that is consistently profitable is almost always worth more than NCAV and certainly not worth less than net cash per share, especially given the company is willing to consistently pay out dividends (indicating they’re not retaining all of their cash for uneconomic empire building). Because I know they’re consistently profitable, I know that the business, in all likelihood, deserves to trade for more than their NCAV, which is more than 40% above today’s price.
So, instead of doing a chunk of in depth research which would require huge investment and yield little additional information or benefit for me, I’m diversifying into a group of companies that are unquestionably trading for less than liquidation value. In other words, I’m looking for huge asset protection with modest to significant upside potential.
In a way, it’s similar to what Warren Buffett did when he invested in 20 South Korean stocks. He know they were all undervalued, but he was unfamiliar with the accounting and the politics, so he just bought a broad diversified basket and bet that they were all so cheap that good things would happen to him.
And Natoco is the first one of those for me and my Japanese bucket. Let’s hope it works out as well for me as it did for Warren.
Disclosure: long natoco
I’m currently following several of these stocks. The first I’m going to mention is Natoco (4627). You can find the company’s website here and their latest financial report here.
What attracts me to Natoco is very simple: they trade for a discount to their net cash per share and a huge discount to their NCAV and book value. They’re also reporting decent operating profits and has done so consistently for the past ten years. In addition, the company currently sports ~2.3% dividend yield. Finally, they have an English page (though without their translated financials) where you can see a description of what they do.
So just how cheap are they?
They’re trading for ~695 yen per share. This is against net cash per share of 715 yen per share, NCAV of 1025 yen per share, and BV of almost 1620 yen per share. That is serious, serious asset protection.
Now, normally I’d start by investigating the business and describing why I didn’t think the company deserved to trade for such an extreme discount to book.
But not this time.
The fact is with Japanese companies I’m so unaware of the culture, politics, regulations, etc., and have such littel grasp on their financials and where all the “bodies are buried” that I’m simply unable to do that with these Japanese companies.
Instead, I’m relying on one simple thing- a business that is consistently profitable is almost always worth more than NCAV and certainly not worth less than net cash per share, especially given the company is willing to consistently pay out dividends (indicating they’re not retaining all of their cash for uneconomic empire building). Because I know they’re consistently profitable, I know that the business, in all likelihood, deserves to trade for more than their NCAV, which is more than 40% above today’s price.
So, instead of doing a chunk of in depth research which would require huge investment and yield little additional information or benefit for me, I’m diversifying into a group of companies that are unquestionably trading for less than liquidation value. In other words, I’m looking for huge asset protection with modest to significant upside potential.
In a way, it’s similar to what Warren Buffett did when he invested in 20 South Korean stocks. He know they were all undervalued, but he was unfamiliar with the accounting and the politics, so he just bought a broad diversified basket and bet that they were all so cheap that good things would happen to him.
And Natoco is the first one of those for me and my Japanese bucket. Let’s hope it works out as well for me as it did for Warren.
Disclosure: long natoco
