For US investors, 'buying Japanese' has no stigma
"Made in Japan" doesn't bother Wall Street. US investors have been buying Japanese stocks almost as fast as Americans have been buying Datsuns and Toyotas.
The Japanese stocks of such companies as Sony, Canon Inc., Fuji Photo Film Company Ltd., Honda Motor Company Ltd., Pioneer Electronics, TDK Electronics, and Matsushita Electric have recently soared to new highs. And, in Tokyo, a raging bull market has propelled the Tokyo Nikeei Dow Jones average to a series of new highs. Only on Friday, May 1, did the Tokyo Dow finally retreat, dropping 98 points, its biggest drop of the year.
(In the United States, the stocks of Japanese companies are sold as ADRs, or American Depository Receipts. An ADR is issued by an American custodial bank in the US in lieu of the original shares, which are held in custody abroad whenever there is sufficient American investor interest in the stock.)
Even the prospect of "voluntary restraints" by the Japanese automakers hasn't hurt the Japanese auto stocks. In Japan, the day after the restraints were announced, the stocks of the automakers were up sharply. Honda Motor, for example, picked up 33 yen, or 3.8 percent, in one day. Japanese investors were expecting much greater cutbacks than those agreed to by the US government and the Japanese Minister of International Trade and Industry.
US analysts, looking at the Japanese companies, still see some good investment opportunities even though the stocks have been strong.
John Abbink, international investment analyst for Merrill Lynch, Pierce, Fenner & Smith Inc., says, "What will happen in Japan this year is that companies that did well last year will not do as well this year. . . . A different group of stocks will lead the market." Specifically, he says companies that are involved in retail stores, apparel, and consumer finance will outperform the traditional Japanese companies, such as Sony or Hitachi.
Relative to the US markets, the Value Line Investment Survey rates 7 of the 10 Japanese companies it follows as above average, in terms of their timeliness as an investment. Richard E. Ozaroff, senior industry analyst, explains the rating, saying ". . . they are dynamic, export-oriented companies that are well managed and in the forefront of technology." Value Line has recently expanded its coverage of the Japanese companies, since it considers them increasingly important to US investors.
Mr. Abbink says the main reason he feels that such traditional favorites as Sony will not do as well is the relative strength of the yen. Last year, the companies were faced with a cheap yen, which made exporting easy. This year the yen has strengthened.
Domestically, the Japanese economy should improve in the second half. As Mr. Abbink notes, however, "In the domestic economy they aren't buying millions of Betamaxes [a Sony videotape recorder]." He expects a good performance from the electronics companies, but not an outstanding one.
Milton Schlackman of Bear, Stearns & Co. says he remains neutral on the stock of Sony, since he expects the earnings to make little, if any, progress in fiscal 1981. Sony's operating income dropped 14 percent in the first quarter of this year, mainly because of the strong yen and heavy start-up and research-and-development expenses. Over the long term, Mr. Schlackman says, he views Sony as a positive investment, since it has so many new products it will be introducing. "Sony is a very creative company," he comments.
The Japanese electronics companies have another advantage, too. In some markets they totally dominate sales. For example, in sales of videotape recorders, the Japanese now represent more than 95 percent of the market. Last year they sold $2.75 billion worth of these units and $500 million worth of video cassettes. Pioneer and Matsushita both hope to profit from the videodisc business. Sony, however, has held off marketing its own version of the videodisc, Value Line says, because it fears the market won't develop.
The Japanese also dominate the camera market. Value Line notes that Canon is the "world leader" in cameras. In 1980, earnings soared by 150 percent, on an ADR basis. Although Value Line expects Canon's sales to stay strong, the rise in the yen and start-up costs will cut into earnings. Thus, it is forecasting only a 5 percent rise in earnings on a dollar-adjusted ADR-basis in fiscal 1981. On a yen basis, Canon's earnings should rise by 25 percent.