When looking for Japanese stocks to buy now, we look for high-quality firms that are under-researched and undervalued, where through our engagement we feel we can unlock significant value. We want to be constructive partners, sharing ideas with management on how to rectify the share-price undervaluation. In our view, low valuations, growing shareholder value and engagement are a powerful combination for generating high returns.
Stocks to buy now for growth
Investors underappreciate the growth potential of Wacom’s technology, but we think that will soon change. We have built a good rapport with management and under the leadership of CEO Nobutaka Ide, Wacom has improved its communication with investors and grown its operating earnings by an annualised 39% since 2018. This growth earns the company a place on our list of the best stocks to buy now.
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Global flavour and fragrance
T Hasegawa (Tokyo: 4958) is a top-ten global flavour and fragrance (F&F) company. The investment merits of F&F companies are not lost on international investors, with the group’s global peers trading on an average EV/Ebitda multiple of 22 compared with T Hasegawa’s 11. T Hasegawa’s comparatively low EV/Ebitda does not reflect the quality of the business and offers an attractive opportunity in a rapidly growing industry characterised by high customer retention, strong barriers to entry and pricing power.
T Hasegawa has responded positively to our suggestions, and we are excited about the changes under way. The firm has established a new overseas investor relations team and brought in dynamism and fresh perspectives with new appointments. Led by a Western-leaning president intent on changing the conservative managerial culture, T Hasegawa is set for bold new growth.
Cashing in on carrying chips
Shin-Etsu Polymer (Tokyo: 7970) is a listed subsidiary of Shin-Etsu Chemical. It focuses on PVC and silicone-rubber processing. Driven by successful price increases and strong volume growth in its division producing wafer carrier cases (used for storing semiconductor wafers), Shin-Etsu Polymer grew sales and operating profits by an annual 20% and 55% respectively over the last quarter, with a five-year annual operating-earnings growth rate of 12%.
On an EV/EBIT ratio of just 5.7, the stock is a good opportunity to generate attractive returns from a high-quality, growing business – not to mention the prospect of a buyout by its parent company, Shin-Etsu Chemical. That's why we rate it one of the best stocks to buy now in Japan.
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