Three Japanese stocks to buy now

Each week, a professional investor tells us where he’d put his money. This week: Michael Lindsell of Lindsell Train picks three Japanese stocks to buy now.

Each week, aprofessional investor tells us where he'd put his money. This week:Michael Lindsell of Lindsell Train.

One of Lindsell Train's founding principles is to run client money as we would run our own which means to protect and if possible grow capital. The best chance of achieving this is by investing only in those companies that we judge to be exceptional. For us, exceptional means: likely to be profitably in business in 20 years' time. It is surprising how few quoted companies meet this test, as evidenced by the high attrition rate for constituents of equity indices over the past 20 years. Because there are only a limited number of such companies that meet our criteria, we run concentrated portfolios, with 20-30 holdings, and we rarely make changes. Here we look at three exceptional Japanese companies.

Nintendo (Tokyo: 7974) owns perhaps the most valuable collection of video-game content in the world. Its key franchises have sold billions of copies and account for all but two of the top ten best-selling games of all time. However, of late it has struggled to properly monetise this intellectual property. Since the peak success of the Wii and DS consoles in 2009, revenues have fallen substantially as the subsequent generation of consoles failed to match the hype of their predecessors and struggled to meet the challenges posed by smartphones. But new hardware (Nintendo Switch) has been unveiled to refresh the now four-year-old Wii U, and Nintendo will soon release its flagship Super Mario character as an iPhone app, inspired by the global phenomenon of Pokmon Go which amply demonstrated the global appeal of Nintendo and its intellectual property.

Kao (Tokyo: 4452) is another globally important business listed and based in Japan. Like Procter & Gamble in the US or Unilever in Europe, Kao sells everyday consumer and personal-care goods with a dominant domestic market position. It holds a top three position in every Japanese personal-care category, with the vast majority of its revenues deriving from products in the number one spot. Kao's high-quality, Japanese-made products have also found favour with Asia's emerging middle classes. In China, Kao has established leading positions in critical markets such as high-margin disposable nappies, meaning it now derives almost one-third of sales from fast-growing overseas territories.

Almost all securities trading in Japan takes place on exchanges owned and run by Japan Exchange Group (Tokyo: 8697) the company has a virtual monopoly. The group also owns the Japan Securities Clearing Corporation, which monopolises the clearing of trades and a wider range of over-the-counter yen transactions. The company earns operating margins of around 50%, which when added to growth in trading has supported strong dividend growth of 29% per annum since 2009. In its role as the owner of the stock exchange the company oversees Japan's new corporate governance reforms. The example it sets ensures that shareholder returns have been prioritised since the amalgamation of the regional exchanges in 2011.

Recommended

Why aircraft leasing funds look attractive now
Investment trusts

Why aircraft leasing funds look attractive now

Aircraft-leasing funds crashed during the pandemic, David C. Stevenson explains why the outlook for these funds may be improving.
15 Aug 2022
Share tips of the week - 12 August
Share tips

Share tips of the week - 12 August

MoneyWeek’s comprehensive guide to the best of this week’s share tips from the rest of the UK's financial pages.
12 Aug 2022
Aviva: One for income investors to tuck away
Share tips

Aviva: One for income investors to tuck away

Insurance giant Aviva is one of the highest yielding stocks in the FTSE 100 – and it’s cheap, too, making it a tempting target for income investors. R…
10 Aug 2022
Is abrdn’s eye-catching 9.2% dividend yield sustainable?
Share tips

Is abrdn’s eye-catching 9.2% dividend yield sustainable?

Shares in investment manager abrdn currently yield 9.2%. Generally speaking, says Rupert Hargreaves, it pays to be sceptical of very high dividend yie…
9 Aug 2022

Most Popular

Don’t listen to the doom-mongers – the future is bright
Economy

Don’t listen to the doom-mongers – the future is bright

With volatile markets, raging inflation and industrial unrest, it may feel like things are bad and likely to get worse. But the end of the world is no…
15 Aug 2022
How solar panels could lower your energy bill
Energy

How solar panels could lower your energy bill

Solar-panel installation firms are reporting a four-fold increase in orders this year compared with 2021. Ruth Jackson-Kirby explains how solar can he…
14 Aug 2022
Fill your portfolio with your very best ideas
Investment strategy

Fill your portfolio with your very best ideas

Fund managers’ top picks beat the market, but the rest of their portfolios often add little value, says Chris Sholto Heaton.
13 Aug 2022