The T. Rowe Price Japan Fund (Trades, Portfolio) disclosed its third-quarter portfolio earlier this week.
The fund is managed by Archibald Ciganer as part of the Baltimore-based firm T.Rowe Price Group. The fund’s strategy is to seek long-term growth through industry leaders in Japan that maintain above-average, long-term earnings and cash flow growth.
During the quarter, the fund established a new holding in Kyowa Kirin Co. Ltd. (TSE:4151, Financial) and sold out of several positions, the most significant of which were Zozo Inc. (TSE:3092, Financial) and Jamco Corp. (TSE:7408, Financial).
Kyowa Kirin
Three years after selling out of its small 24,000-share holding of Kyowa Kirin in the first quarter of 2016, the T. Row Price Japan Fund bought 643,400 shares, giving it a portfolio weight of 1.74%. During the quarter, the stock was trading at an average price of 1,909.95 yen per share ($17.58).
The pharmaceutical company specializes in oncology and nephrology and has a market cap of 1.09 trillion yen ($10 million). It has a price-earnings ratio of 16.16, a price-sales ratio of 3.42 and an operating margin of 18.48%. GuruFocus has assigned the company a financial strength score of 10 out of 10 and a profitability score of 7 out of 10.
According to the Peter Lynch chart below, the stock is currently trading at its fair value. The company has been consistently increasing its net income since 2015 and has no outstanding debt. Overall, it has a very strong balance sheet, though its revenue per share has been in decline for the past three years.
With the purchase of Kyowa Kirin, the equity portfolio now has a health care industry weighting of 11.12%, most of which consists of pharmaceutical companies.
ZozoÂ
The fund sold out of its 727,800-share Zozo position. During the quarter, the stock was trading at an average price of 2,107.74 yen per share.
This furniture and clothing retail giant has a market cap of 766.29 billion yen. It has a price-earnings ratio of 44.73, a price-sales ratio of 6.38 and an operating margin of 22.96%. It has a GuruFocus financial strength score of 7 out of 10 and a profitability score of 10 out of 10.
The Peter Lynch chart below shows the stock as being slightly undervalued. The company’s newly issued debt puts it at a cash-to-debt ratio of 0.86 and an interest coverage ratio of 361.22. While the company’s revenue grew this year, its net income decreased by 4,171 billion yen, or 20.69%.
Jamco
The Japan Fund sold all 305,400 shares of Jamco. During the quarter, the stock was trading at an average price of 1,737.66 yen.
The aircraft company specializes in interior aircraft design and has a market cap of 40.91 billion yen. It has a price-earnings ratio of 41.4, a price-sales ratio of 0.51 and an operating margin of 4.04%. It has a GuruFocus financial strength score of 5 out of 10 and a profitability score of 6 out of 10.
In the Peter Lynch chart below, the stock appears to be trading a little bit above its intrinsic value. The company appears to have cash flow issues, with a cash-to-debt ratio of 0.15, an Altman-Z score of 1.66 and faster asset growth than revenue growth.
Disclosure: Author owns no positions in any of the stocks mentioned.
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