Tracking a Tech Turnaround

 | Sep 18, 2013 | 5:00 PM EDT  | Comments
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In January, I discussed what I believed were the positive prospects for the stocks of Japanese firms Sony (SNE) and Panasonic. Since then, shares of both Sony and Panasonic are up about 60%.

My original column focused the immediate prospects for these companies' stock prices as a result of the yen depreciation being embarked on by the Bank of Japan, but that was only a catalyst to attract investors' attention to the companies. Both companies had fallen out of favor with investors because their growth prospects were eclipsed by other technology companies in more attractive markets. This allowed the stock prices to decline to levels that were consistent with value investing.

As great as the performance of these stocks has been this year, the appreciation so far represents merely an upside correction to the underlying value that was already there. Neither stock is yet reflecting expectations of a return to growth, but I expect that the growth investors will begin to participate in both stocks now.

One of the issues restraining investor interest in the companies so far is the ongoing concern about their inability to downsize their workforce or otherwise restructure them to meet current technology needs as other companies outside of Japan have. It is a legitimate concern, but it is being dealt with through attrition rather than layoffs. For large companies, this strategy is a preferable way of adjusting their workforce. It is not uncommon outside of Japan, either. Both companies are also expanding their operations outside of Japan by opening new headquarters: Sony in New York and Panasonic in New Jersey.

I concluded myoriginal column in January with my concerns about the immediate impact a depreciating yen would have on the stock prices of South Korean competitors LG Display (LPL) and Samsung. LG's stock has declined by about 10% since then -- a move I think is largely reflective of the yen's depreciation. This adjustment is now completed. I expect that company and stock to begin to advance again soon.

Samsung is exactly where it was in January. The company is massive, with 91,000 employees, and it's in an increasingly high-profile position among investors due to its smartphones. But its stock is illiquid. I would advise taking a pass on this one in preference for one of the others listed here. 

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