Three of corporate Japan’s hidden gems to buy now

Professional investor Nicholas Price of the Fidelity Japan Trust picks three of his favourite Japanese stocks that he thinks the market has overlooked.

The pandemic continues to pose near-term risks as new variants of the virus and rising infection rates prompt governments to extend restrictions. However, vaccines and continued monetary and fiscal-policy stimulus bode well for global growth and will be supportive of Japanese equities. Several themes present themselves. Clean energy and environmental-efficiency are areas where Japan has some very competitive companies. Covid-19 has also accelerated trends in e-commerce and digitalisation. As profits recover, companies will prioritise those areas.

Above all, Japan continues to offer a wealth of under-researched mid- and small-cap growth companies, where we typically find better business models and returns on equity (a key gauge of profitability), and management has more incentives in terms of shareholder returns. Active managers like myself, based here in Japan, get the opportunity not only to invest in established global leaders but also to unearth less well-known companies, where lower levels of coverage by analysts can often yield great mispriced opportunities. 

NOF: delivering drugs and profits

NOF (Tokyo: 4403) is a diversified chemicals company with strong positions in many niche markets, resulting in stable growth and high profitability. Its core businesses include surfactants (inputs for toiletries and cosmetics) and drug-delivery system (DDS) products, which ensure that a drug’s active ingredient is delivered and absorbed safely in the right part of the body. 

DDS is a crucial component in mRNA technology (a new form of cancer treatment and also the basis of the Pfizer and Moderna vaccines) and other new treatments, and growth in this field benefits NOF as the market leader. While the stock is often overlooked, this is slowly changing as we successfully engage with the company’s new president to improve the group’s environmental, social and governance and disclosure policies.

Mitsui High-tec: motor-core expert powers ahead

Mitsui High-tec (Tokyo: 6966) comprises almost 70% of the global motor-core market, an essential component of power-train motors in electric and hybrid vehicles. The company’s strength lies in its ultra-precision machining and die technology, which is used to create high-quality motor cores and machine tools. Mitsui High-tec is a dominant supplier and it aims to expand its motor-core production capacity sixfold through 2030, a clear sign of confidence in its order backlog. Yet with a market capitalisation of only £1bn and little coverage, this is a name with significant upside potential.

Coconala: an online freelancers’ market

Coconala (Tokyo: 4176) is a unique online freelancing platform that enables users to trade knowledge, skills and experience. We first invested in the company in 2019, when it was unlisted, recognising it as a beneficiary of the many structural changes occurring in Japan’s labour market; we were attracted by its high and sustainable growth rates as well as the high operating leverage of its business. 

Coconala recently had a strong debut on the Tokyo Stock Exchange and the value of the our holding increased more than threefold. The success of this investment highlights the benefits of our research on the ground and efforts to find the most attractive opportunities in corporate Japan.

Recommended

Changpeng Zhao: Binance founder undaunted by the crypto winter
Bitcoin & crypto

Changpeng Zhao: Binance founder undaunted by the crypto winter

Changpeng Zhao, the founder of controversial cryptocurrency exchange Binance, has been severely battered by carnage in the sector. But the future is b…
3 Jul 2022
Ray Dalio’s shrewd $10bn bet on the collapse of European stocks
European stockmarkets

Ray Dalio’s shrewd $10bn bet on the collapse of European stocks

Ray Dalio’s Bridgewater hedge fund is putting its money on a collapse in European stocks. It’s likely to pay off, says Matthew Lynn.
3 Jul 2022
Just how powerful is artificial intelligence becoming?
Tech stocks

Just how powerful is artificial intelligence becoming?

An uncannily human response from an artificial intelligence program sparked a minor panic last month. But just how powerful are machines getting – and…
2 Jul 2022
Persimmon yields 12.3%, but can you trust the company to deliver?
Share tips

Persimmon yields 12.3%, but can you trust the company to deliver?

With a dividend yield of 12.3%, Persimmon looks like a highly attractive prospect for income investors. But that sort of yield can also indicate compa…
1 Jul 2022

Most Popular

Five dividend stocks to beat inflation
Share tips

Five dividend stocks to beat inflation

During periods of high inflation, dividend stocks tend to do better than the wider market. Here, Rupert Hargreaves pick five dividend stocks for incom…
30 Jun 2022
Don’t try to time the bottom – start buying good companies now
Investment strategy

Don’t try to time the bottom – start buying good companies now

Markets are having a rough time, so you may be tempted to wait to try to call the bottom and pick up some bargains. But that would be a mistake, says …
1 Jul 2022
The ten highest dividend yields on Aim
Income investing

The ten highest dividend yields on Aim

Rupert Hargreaves picks the highest-paying dividend stocks on Aim, London’s junior market for small and medium-sized growth companies.
29 Jun 2022