Investors are ignoring these three cheap Japanese gems

published 8 July 2019

A professional investor tells us where he'd put his money. This week: Joe Bauernfreund of the AVI Japan Opportunity Trust selects three cheap Japanese shares.

We seek out companies that are overlooked, unloved or ignored by mainstream investors. These stocks have been marked down as a result of particular circumstances that we think are unlikely to persist. Asset Value Investors (AVI) has a global focus but we have a very strong belief in Japan. Last year we launched a dedicated Japan fund, AVI Japan Opportunity Trust (AJOT).

Japanese companies have an abundance of cash, driven by strong profit growth and historically low payout ratios. However, the culture of locking cash away and ignoring shareholders has been changing since the introduction of the Corporate Governance Code in 2015. Companies are unwinding cross-shareholdings, buying back record numbers of shares and raising dividends. Yet, despite the clear progress, valuations are still depressed. There are many opportunities in high-quality, cash-rich, small Japanese companies that the market is unfairly neglecting. Here are three examples.

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Joe Bauernfreund is chief executive officer and chief investment officer of Asset Value Investors. He is the manager of AVI Global Trust and AVI Japan Opportunity Trust.