Marty Whitman’s Third Avenue has loaded up on many Japanese companies including: Mitsubishi Estate (MITEF.PK), Toyota Industries (TYIDF.PK), and RHJ International (RHJIF.PK). These companies all have loads of cash and are trading below break-up value, or net asset value as Whitman likes to say.
RHJ is trading at about half of NAV. Toyota Industries is the original Toyota and holds 5% of the auto manufacturer’s stock. What it holds in cash and marketable securities almost equates to its market cap.
Jean-Marie Eveillard of First Eagle has his share of Japanese companies too. Keyence (KYCCF.PK), SMC (SMECF.PK), and Fanuc (FANUF.PK) all make equipment for manufacturers. It is difficult to copy the Japanese because they are so good at this and have been a machine tool economy for decades. What these companies have lost to a shrinking Japanese economy has been mitigated by China’s demand.
Keyence is a value picker’s dream come true. It has almost doubled sales in five years, has no long term debt, and has cash and marketable securities that equate to one third of its market value. Keyence makes precision measuring equipment used in manufacturing. Imagine a laser eye that is able to count and size millions of widgets coming down a conveyor belt.
Investors worry about Japan’s aging society. Rightly so. What makes Japan so great in a market like this is managements’ conservatism. These companies typically hoard cash and shun debt. It’s true that management is unfriendly to shareholders but this is already factored into the stock. The yen will probably do well as the Fed prints money to bail out our erstwhile financials.
As the Asian economies keep chugging along, manufactures will rely on Japanese expertise in precision equipment and robotics. What will eventually move these stocks will be: M&A, share buy-backs, increased dividends, or an eventual recognition that the cash flows of these companies have been steadily rising.
If you are buying these companies on the Pink Sheets (over the counter), be careful. Make sure you put in limit orders. The bid/ask spreads can be quite high. If your broker is able to trade on foreign exchanges, you might want to use the home market of the stock.
Source: Holmes Osborne at www.holmesosborne.com