Japanese stocks are proving something of a safe haven, with solid growth in the domestic economy, the most stable leader since World War II, and even the prospect of long-desired inflation in the works.
The Japanese brokerage Nomura has identified 10 stocks for growth in 2019. Here I'll take a look at the first five.
Civil-engineering and construction company Taisei (T:1801) (TISCY) is unusual among Japan's Big Five "supercontractors" in that, while Kajima, Shimizu, Takenaka and Obayashi are controlled by single families, it is majority owned by its employees. Not surprisingly, it looks good compared to its peers in its attitude toward generating shareholder returns.
Taisei filed record operating profit for the year ending March 2017 on the back of projects in the Tokyo Bay area, site of the bulk of the 2020 Olympics venues. Rising wages then ate into earnings, but it now has the largest order backlog of any of the major contractors. That promises strong earnings well beyond the 2020 Games.
Drinks company Sapporo Holdings T:2501 is of course best-known for its beer. But it is embarking on a series of structural reforms that are designed to prune its operations after rapid expansion through mergers and acquisitions that began when it bought Pokka in the 2012 fiscal year. The reforms involve a review of its troubled soft drinks business in Japan and North America. Profits turned up late last year, indicating strong short-term earnings prospects.
Sales of its alcoholic drinks in North America are going great, and this cornerstone of its overseas efforts is now being put under direct control of the parent holding company. In Japan, it's looking to wean itself off a dependence on sales through vending machines -- which of course in Japan sell beer.
Dentsu (T:4324) (DNTUY) is Japan's dominant advertising agency, and the easiest way to access media investment in a massive market. It is one of the most successful agencies in terms of digital sales, which are producing high margins. The company is intent on overseas expansion while looking to trim costs, particularly in personnel.
Japan may have lost its edge in electronics manufacturing, supplanted by cheaper Korean and now Chinese rivals. But it's arguably the world's leading force in pharmaceuticals research, an industry boosted both by government incentives and the world's fastest-ageing population.
Eisai (T:4523) (ESALY) has a promising drug for Alzheimer's disease called aducanumab. It's now entering Phase 3 trials that are due to wrap up at the end of this year or the start of next year. Should these two trials, known as Emerge and Engage, prove successful, Eisai will be the first company in the world to offer a disease-modifying treatment for Alzheimer's. Nomura pegs its chances of success at 50% -- I'll take those odds, considering projected sales would be around ¥610 billion ($5.6 billion).
U.S. exposure is at least part of the attraction for Taiheiyo Cement (T:5233) (THYCY) , which should benefit from ramped-up investment into infrastructure in California, particularly for road paving. This should rise sharply in 2019. The fact that Taiheiyo is increasing its U.S. capacity provides a company-specific reason to favor this stock.
Taiheiyo will also gain from the continued redevelopment of greater Tokyo, as with the Tokyo Bay area. The impending consumption-tax hike later this year should enable the government to embark on further infrastructure spending.