Legendary Wall Street investing figure Warren Buffett, CEO of Berkshire Hathaway (ticker: BRK.A, BRK.B), has taken some heat for not putting much of Berkshire’s $146.6 billion in cash to work in 2020. Buffett hasn’t made any major acquisitions during the 2020 market downturn and instead has been selective with investments.
However, a $6 billion investment in Japan made headlines in late August.
U.S. stocks have left Japanese stocks in the dust in the last decade, but Buffett’s investment may signal that he believes it’s finally time for Japan to shine.
Buffett bought large stakes in five of Japan’s largest trading firms, and the diversification of his investments indicates that he sees value in the Japanese market. Here’s a closer look at the five Japanese stocks Buffett is buying:
— Mitsubishi Corp. (MSBHF)
— Mitsui & Co. (MITSY)
— Sumitomo Corp. (SSUMY)
— Itochu Corp. (ITOCY)
— Marubeni Corp. (MARUY)
Mitsubishi Corp. (MSBHF)
Mitsubishi is Japan’s largest trading company. Americans may be familiar with Mitsubishi Motors Corp. (MMTOF), but Mitsubishi holds only a 10% ownership stake in the auto company. The Mitsubishi that Buffett bought has an extremely diversified business that includes operations in information technology, finance, infrastructure, metal mining, energy, heavy machinery consumer products and chemicals.
Mitsubishi’s roots date to 1860. The company reported $134.2 billion in revenue and $6.1 billion in pretax profit for the year ending in March 2020.
Mitsubishi shares are up just 13.4% overall in the last 10 years and trade at an earnings multiple of just 9.9, making the stock a potential classic Buffett value play. In addition, Mitsubishi has a sizable 4.9% dividend.
Mitsui & Co. (MITSY)
Mitsui is one of the largest conglomerates in the world. Like Mitsubishi, Mitsui is a stalwart of the Japanese economy dating back to 1876. Mitsui has a diversified range of businesses, including energy, machinery, food, chemicals, textiles and logistics.
The company reported $64.8 billion in revenue and $7.9 billion in gross profit for the year ending in March 2020. In the most recent quarter, gross profit was down 9.3% and revenue was down 6.8% compared with a year ago.
The diversified industrial stock trades at a reasonable earnings multiple of 10.5 and pays a 3.3% dividend. Mitsui shares have performed much better than Mitsubishi over the last decade and have nearly kept pace with the S&P 500 in the last year, gaining 18.4%.
Sumitomo Corp. (SSUMY)
Sumitomo dates all the way back to a book and medicine shop in the 17th century, according to the company’s website. Today, its diversified businesses include importing and exporting goods such as metals, machinery, fuel, chemicals, food and textiles. In addition, the company owns and operates real estate, construction, insurance, shipping and finance businesses.
In the most recent quarter, Sumitomo reported $9.8 billion in revenue and $1.6 billion in gross profit. Revenue was down 21.1%, and gross profit was down 24% compared with a year ago.
Sumitomo shares trade at an earnings multiple of 35.3 and pay a 4.3% dividend. Sumitomo stock has lagged many of its Japanese peers in 2020, declining more than 10% year to date. Despite the company’s struggles, management is guiding for fiscal 2020 profit of $941 million, excluding one-time losses.
Itochu Corp. (ITOCY)
Itochu traces its lineage to 1850. Today, the company has six major divisions: textiles, metals/minerals, food, machinery, energy/chemicals, and general products/real estate.
In its annual report, Itochu management emphasized creating value and prioritizing shareholder returns. CEO Masahiro Okafuji told The Wall Street Journal that Buffett’s investment is “welcome news,” and the company hopes that it will bring more international attention to Japanese trading companies.
Itochu reported $100.9 billion in revenue and $4.6 billion in net profit for the year ending in March 2020. Revenue was down 5.3%, but net profit was up 0.1% compared with a year ago.
Itochu shares trade at an earnings multiple of just 9.3 and pay a 2.4% dividend. Unlike the other Japanese stocks Buffett bought, Itochu has been an outperformer in the last year, gaining more than 33% compared with about a 20% gain by the S&P 500.
Marubeni Corp. (MARUY)
Marubeni is Japan’s fifth-largest trading company. It operates business segments that include food/consumer products, chemical/forest products, energy and metals, transportation/industrial machinery, and power.
Compared with the other Buffett investments, Marubeni is a relative newcomer founded in 1918. In 2018, the company announced a long-term plan to shift its energy and mining businesses away from coal and commit to doubling its renewable energy investment from 10% to 20% of its energy portfolio.
In the most recent quarter, Marubeni reported $14.9 billion in revenue and $566.8 million in profit. Revenue was down 16.8% from a year ago, while profit fell just 9.5%.
Looking ahead to fiscal 2021 ending in March, management is forecasting $941.6 million in net profit. Marubeni shares pay a 4.2% dividend, but the stock has been the worst performer of the group of Japanese Buffett stocks in the last five years, gaining about 12.5% in that time.
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