Socgen equity strategist Dylan Grice in a research note today says that were the Japanese market to fall by another 20% investors should buy “with both hands.” As it is now, he see a host of companies trading at below their intrinsic value. The cheapest is Tokyo Electric Power Co., the company at the center of the nuclear disaster at Fukushima-Daiichi. I would personally take a pass on Tepco right now, and look at little further down his list, which includes office electronics maker Ricoh, shipper Mitsui O.S.K., steelmaker JFE Holdings, telecom giant Nippon Telegraph & Telephone, and entertainment company Sega Sammy Holdings. All of these have intrinsic value at least 50% greater than current price, according to Grice’s calculations.
As for the overall health and solvency of the Japanese economy, Grice says that there is ultimately some concern about the potential for defaults on government debt, but that this is a risk that investors can be hedged at attractive prices, enabling investors to focus on stock selection. To him, the entire Japanese market looks attractive. The Topix at 800 equates to a cyclically adjusted p/e of roughly 16. It could get a lot cheaper if the nuclear situation worsens and earthquake damage takes its toll. But it’s worth remembering the depths of the 2008 crash–the best time to buy the U.S. market was when everyone thought the bottom was about to fall out.
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SocGen Strategist: Get Ready To Buy Japan ‘With Both Hands’