The T. Rowe Price Japan Fund (Trades, Portfolio) disclosed it established three new positions when it released its second-quarter portfolio on Monday.
The fund, which is part of Baltimore-based asset management firm T. Rowe Price Group, is managed by Archibald Ciganer. In order to achieve long-term growth of capital, the fund invests in Japanese companies that have a leading market position, experienced management teams and are capable of maintaining above-average, long-term earnings and cash flow growth.
The stocks that met this criteria in the second quarter were Takeda Pharmaceutical Co. Ltd. (TSE:4502, Financial), Nippon Paint Holdings Co. Ltd. (TSE:4612, Financial) and Mercari Inc. (TSE:4385, Financial).
Takeda Pharmaceutical
Having previously closed a position in Takeda in the third quarter of 2015, T. Rowe Price established a new 216,800-share holding for an average price of 4,636.86 yen ($41.13) per share, giving it 1.05% portfolio space.
The pharmaceutical company, which is the largest in Japan, has a market cap of 3.7 trillion yen; its shares closed at 4,691 yen on Monday with a price-earnings ratio of 19.76, a price-book ratio of 1.85 and a price-sales ratio of 2.08.
The Peter Lynch chart below shows the stock is trading higher than its fair value, suggesting it is overpriced.
GuruFocus rated Takeda’s financial strength 6 out of 10. While the company’s level of interest coverage exceeds Benjamin Graham’s standard of 5, the Altman Z-Score of 2.32 indicates it is under minor financial pressure. The company’s profitability and growth scored a 7 out of 10 rating, boosted by an expanding operating margin, a moderate Piotroski F-Score of 5 and a business predictability ranking of one out of five stars. According to GuruFocus, companies with this ranking typically see an increase of 1.1% per year on average.
Of the gurus invested in Takeda, the Vanguard Health Care Fund (Trades, Portfolio) has the largest position with 1.34% of outstanding shares. The Causeway International Value (Trades, Portfolio) Fund also owns the stock.
Nippon Paint Holdings
The fund invested in 190,500 shares of Nippon Paint for an average price of 4,516.92 yen per share, dedicating 0.94% of the portfolio to the position.
The manufacturer of paint and coating products has a market cap of 1.48 trillion yen; its shares closed at 4,600 yen on Monday with a price-earnings ratio of 36.52, a price-book ratio of 3.03 and a price-sales ratio of 2.39.
According to the Peter Lynch chart below, the stock is overpriced since it is trading above its fair value.
Supported by a comfortable level of interest coverage and a high Altman Z-Score of 5.10, Nippon’s financial strength was rated 8 out of 10 by GuruFocus. Its profitability and growth scored a 7 out of 10 rating. While the company’s operating margin is expanding, the Piotroski F-Score of 3 implies poor business operations. In addition, the company’s one-star business predictability rating is on watch, which, according to GuruFocus, means any number of factors could impact the business in the near future.
The fund holds 0.06% of Nippon’s outstanding shares.
Mercari
The Japan Fund picked up 27,400 shares of Mercari for an average price of 4,700.56 yen per share, expanding the portfolio 0.13%.
The newly public e-commerce company, which provides a platform through which individuals can buy and sell products, has a market cap of 535.64 billion yen; its shares closed at 4,410 yen on Monday with a price-book ratio of 121.30.
Since its initial public offering in June, the stock has fallen from 5,300 yen.
GuruFocus rated Mercari’s financial strength 4 out of 10 and its profitability and growth 2 out of 10.
The fund holds 0.02% of the company’s outstanding shares.
Other trades
During the quarter, the fund also added to its positions in Zojirushi Corp. (TSE:7965, Financial), TechnoPro Holdings Inc. (TSE:6028, Financial), Japan Tobacco Inc. (TSE:2914), Hoshino Resorts REIT Inc. (TSE:3287) and Recruit Holdings Co. Ltd. (TSE:6098).
The fund's $870 million portfolio, which is composed of 80 holdings, is largely invested in the industrials and consumer cyclical sectors. According to its fact sheet, the fund returned 32.66% in 2017, beating the MSCI Japan Index’s 24.39% return.
Disclosure: No positions.
