On a percentile basis, Japan is still a long ways away from catching up. The likelihood of Japan’s Central Bank ending open market purchases prematurely is low. Therefore the decline in the dollar-yen currency pair is likely to be extremely temporary.
The dollar-yen exchange rate is in a long-term bull market and the pull-back in the rate is an opportunity to buy in at a dip. Currency traders should be more focused on capturing the next 10% upswing in the value of the dollar relative to the yen over the course of a full year rather than trading in and out of the dollar-yen currency pair on a daily basis. An effective currency investment strategy may involve averaging in extremely slowly throughout the course of a year, this way mass currency fluctuations lower the damage done to a leveraged currency portfolio.
I am an enormous fan of buying Japanese equities
Sony Corporation (ADR) (NYSE:SNE) could be the investment opportunity of a lifetime. The mobile division was able to grow by 81.5% year-over-year. The growth in mobile was driven by the Sony Corporation (ADR) (NYSE:SNE) Xperia line of phones. Sony Corporation (ADR) (NYSE:SNE) Bank grew earnings by 18.6% year-over-year. The company’s mobile strategy paired with the growth in its financial services arm boosted earnings.
Analysts on a consensus basis believe that the company could grow its earnings by 52.4% on average over the next five years. To be fair, these high growth rates are because of currency fluctuations and growth in its mobile segment, along with cost cutting.
Toyota Motor Corporation (ADR) (NYSE:TM) is another favorite. While the company doesn’t present nearly as much upside in earnings, analysts on a consensus basis believe that Toyota Motor Corporation (ADR) (NYSE:TM) could grow earnings by 6.7% in fiscal year 2014, with a 32% growth rate in earnings for fiscal year 2015. The company also compensates its investors through a 1.65% dividend yield.
The strength of Toyota Motor Corporation (ADR) (NYSE:TM)’s business operations within the United States is unquestionable. The company was able to report 2.5% year-over-year growth in May auto sales and was the number one retail manufacturer for the May 2013 period.
Nomura Holdings, Inc. (ADR) (NYSE:NMR) is one of my favorite investment opportunities among the Japanese ADRs. The company has grown its revenues consistently over the past five years. The company reported 5.47% revenue growth, which is pretty impressive considering the slow economic growth in Japan, paired with the currency market fluctuations.
Analysts on a consensus basis anticipate that the company will grow earnings by 75% for the current fiscal year with 85.70% growth in the following fiscal year. The growth in earnings comes with a 25.9 earnings multiple, which is reasonable based on the amount of growth that is projected over the next two years. The bank also compensates its investors with a 1.11% dividend yield.
Conclusion
Going long on the dollar-yen pair could remain a lucrative investment position for currency speculators. However if leveraged foreign exchange is too much of a gamble, why not consider investing into Sony Corporation (ADR) (NYSE:SNE), Toyota Motor Corporation (ADR) (NYSE:TM) or Nomura Holdings, Inc. (ADR) (NYSE:NMR)?
Alexander Cho has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.
The article Buy Japan on the Dip originally appeared on Fool.com.
Alexander is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.
