On Warren Buffett's 90th birthday, Berkshire disclosed acquisitions of five Japanese trading companies, so called Sogo Shosha. The stakes in Itochu Corp, Marubeni Corp, Mitsubishi Corp, Mitsui & Co Ltd and Sumitomo Corp over 12 months.
Mitsubishi is investment varies from motors, foods, retails, and foreign investments. Lawson is famous for Japanese convenient store which is about 1/3 owned by Mitsubishi. Norwegian company Cermaq is well-known for farming salmon in Oslo, Chile, and Canada. Sumitomo invests in variants of field such as information software, heavy equipment, chemicals. Isuzu, which is recognized as heavy vehicles like trucks, is part of Sumitomo. Fyffes, you may had heard, is also Sumitomo-owned fruit producing company (mostly banana) headquartered in Dublin, Ireland. Itochu is known for investing agricultural multinational corporation called Dole. It also takes part of Family Mart (95%), which is Japanese most common convenient store. Kwik Fit, British car service and repair company, is also part of Itochu. Marubeni and Mitsui are also recognized as leading investment companies in and out of the country.
Berkshire invested 5% of stakes in five companies each which is worth 655 billion yen ($6.21 billion). On Monday, shares in the companies surged about 11% in during trading hours. Marubeni was the top gainer among the five companies, jumping 12%. Sumitomo and Mitsubishi rose more than 10% and Mitsui rose 8.2%. Itochu. Berkshire is planning to hold the stake for longer term until it reach till 9.9% each. It was Mr.Buffett's first time to invest in Japanese companies since he is mostly concentrating on U.S. firms. (IMC international and Detlev Louis are just a few example of non-U.S companies) This means he is diversifying his portfolio outside of U.S., since American stocks are now costly which makes him trouble to find the appropriate worth of its value. As he sold stake in newspaper, airlines, finance firms, he had ammunition for giving himself into new bets.
Why did Warren Buffet invested in Sogo Shosha
Low price-to-book ratio
Those five companies have very low market capital against their book value. Four companies except Itochu are less than 1. Their price earning ratio is about 5 to 7, which means the share price is traded only five times more than their earnings. Japanese companies overall are cash-rich. They have total of over 300 trillion yen which is 1.6 times more than the last decade.
High dividends
Four companies are paying more than 4% of dividend yields (mostly 5% except Itochu). Dividend yield in overall Japanese companies are 0.7% more higher than U.S. Warren Buffett prefers companies which have large compensation for owning the stake of the firm.
Aggressive Investments
Sogo Shosha is trading company but now concentrating on investment field, not only on the energy field such as mining and copper, but also on consumer goods and foods. It is not like Softbank which endows only on IT companies. Five companies which Berkshire invested, may have reason to change more of their strategy on investment; I think because of low growth of Japanese economy.
U.S dollar fall
Worries about the pandemic recession made more of stimulus package and monetary policy which is making U.S. dollar weak. As Japanese Yen is less volatile and quite regarded as safe-haven currency, it could be great hedge against losing value of dollar. Resigning of former prime minister Abe can mean somewhat uncertainty of Abenomics which will trigger Yen to shift its value upwards. (In fact Warren Buffett announced its investments right after the prime minister's resign) Also, newest monetary policy announced in Jackson Hole conference last week could be trigger for the dollar drop.
These are the quotation that approached me impressively. I really want to share these quotes.
“But there is no other place which offers such undervalued stocks with solid financial health and steady profitability” - Wall Street Journal
“The fact that Warren Buffett chose to buy them speaks highly of his confidence in their corporate governance and business acumen,” - Financial Times
Many investors worry that low book value can be a real value trap indicating their growth is over. However, investors like Warren Buffett is not thinking as normal mom-and-pop investors do. If cheap, then there is low risk of losing much money since the downward gap is thin. Although value stocks can be risky due to extremely cheap price, if there is a shift to value in a positive manner, Japanese stocks would likely perform very well indeed.
Source 1: Wall Street Journal
https://www.wsj.com/articles/berkshire-hathaway-buys-stakes-in-five-japanese-trading-companies-11598841219
https://www.wsj.com/articles/warren-buffett-at-90-still-has-an-eye-for-a-bargain-11598881078
Source 2: New York Times
https://www.nytimes.com/reuters/2020/08/31/business/31reuters-usa-investors-buffett-analysis.html
https://www.nytimes.com/reuters/2020/08/30/business/30reuters-berkshire-stake-japan.html
Source 3: Financial Times
https://www.ft.com/content/e20708ac-347b-47de-b79a-ab7fb9088d6f
Source 4: Business Insider
https://markets.businessinsider.com/news/stocks/why-warren-buffett-berkshire-hathaway-7-billion-5-japanese-stocks-2020-9-1029555556#
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