The Japan stock markets, often overshadowed by their American and European counterparts, have long been neglected by investors seeking opportunities for growth.
However, recent developments indicate a changing tide.
Warren Buffett has indicated interest in the Japan markets at the latest 2023 Berkshire Hathaway AGM. Even big names like JPMorgan and Morgan Stanley are also said to be shifting capital into the Japan markets as well.
Earlier this month, the Nikkei 225, Japan’s stock index had closed above 33,000 for the first time since 1990. As of Monday, 13 stocks in the Nikkei 225 have hit their all time high:
If you’re thinking of following the whales, I share 17 undervalued Japan stocks in this article.
Disclaimer: As always, nothing we write serves as financial advice, you should do your own due diligence to pick the best stocks that suit your investing objectives.
Now that the legalities are addressed, let’s get to it. (for those curious about how we got this list, read the next section!)
17 Undervalued Japan Stocks
| Company | Ticker | Current Assets* | Total Liabilities * | Net Net* | Market Cap* | Piotroski Score |
|---|---|---|---|---|---|---|
| Sanyei Corporation | 8119 | 113.0 | 71.2 | 27.8 | 25.2 | 7 |
| Daiken Co.,Ltd. | 5900 | 77.1 | 24.0 | 35.3 | 32.3 | 7 |
| Kikukawa Enterprise, Inc. | 6346 | 74.7 | 16.9 | 38.5 | 34.2 | 7 |
| NKK Switches Co., Ltd. | 6943 | 84.1 | 22.8 | 40.8 | 30.8 | 8 |
| Kyowakogyosyo Co.,Ltd. | 5971 | 90.8 | 19.7 | 47.4 | 39.1 | 7 |
| J-REX Corporation Co., Ltd. | 2995 | 167.7 | 94.1 | 49.1 | 37.3 | 7 |
| Sanyo Industries, Ltd. | 5958 | 152.4 | 77.1 | 50.2 | 45.5 | 9 |
| Sata Construction Co., Ltd. | 1826 | 162.5 | 84.4 | 52.1 | 48.9 | 9 |
| Nakayamafuku Co.,Ltd. | 7442 | 151.2 | 72.5 | 52.5 | 47.1 | 8 |
| Takisawa Machine Tool Co., Ltd. | 6121 | 227.9 | 141.2 | 57.8 | 55.4 | 7 |
| Money Partners Group Co.,Ltd. | 8732 | 533.3 | 443.1 | 60.1 | 60.0 | 8 |
| Mutoh Holdings Co., Ltd. | 7999 | 133.8 | 37.0 | 64.6 | 55.8 | 8 |
| Marufuji Sheet Piling Co.,Ltd. | 8046 | 257.7 | 116.9 | 93.9 | 56.1 | 8 |
| GLOSEL Co., Ltd. | 9995 | 254.6 | 98.7 | 103.9 | 83.1 | 7 |
| Kato Works Co.,Ltd. | 6390 | 570.0 | 390.9 | 119.4 | 106.8 | 7 |
| Foster Electric Company, Limited | 6794 | 556.6 | 273.8 | 188.5 | 145.9 | 8 |
| Tsutsumi Jewelry Co.,Ltd. | 7937 | 416.1 | 13.6 | 268.3 | 173.0 | 7 |
1) Sanyei Corporation (8119)
Sanyei distributes and retails furniture, home appliances and houseware in Japan, Asia and Denmark. While Sanyei distributes their own OEM products, you may not be familiar with their name. But you would definitely have heard of some of the brands they manage:
- Current Assets = ¥113m
- Total Liabilities = ¥71.2m
- Net Net (after 33% discount) = ¥27.8m
- Market Cap = ¥25.2m
2) Daiken (5900)
Not to be confused with the aircon brand, Daiken manufactures and distributes housing construction related products in Japan. It also has a Real Estate Rental segment that operates rental apartments targeting singles and for storage.
A boring business with some exciting financials:
- Current Assets = ¥77.1m
- Total Liabilities = ¥24m
- Net Net (after 33% discount) = ¥35.3m
- Market Cap = ¥32.3m
3) Kikukawa Enterprise (6346)
Kikukawa makes and sells industrial woodworking and metal work machines globally for a wide range of manufacturing applications in industries such as aviation, automobile and printed circuit board.
- Current Assets = ¥74.7m
- Total Liabilities = ¥16.9m
- Net Net (after 33% discount) = ¥38.5m
- Market Cap = ¥34.2m
4) NKK Switches (6943)
As their name suggests, NKK Switches makes and sells industrial switches globally. Their products are being used across many industries from sound equipment to automobiles to wireless communication services.
- Current Assets = ¥84.1m
- Total Liabilities = ¥22.8m
- Net Net (after 33% discount) = ¥40.8m
- Market Cap = ¥30.8m
5) Kyowakogyosyo (5971)
Kyowakogyosyo makes and sells hexagon bolts, cap screws and similar products for use in construction, internal combustion engines, and automobiles. It is based in Japan but supplies internationally.
- Current Assets = ¥90.8m
- Total Liabilities = ¥19.7m
- Net Net (after 33% discount) = ¥47.4m
- Market Cap = ¥39.1m
6) J-REX Corporation (2995)
If you are looking for a real estate business in Japan to invest in, look no further. J-REX develops and manages rental and family condominiums in Japan.
- Current Assets = ¥167.7m
- Total Liabilities = ¥94.1m
- Net Net (after 33% discount) = ¥49.1m
- Market Cap = ¥37.3m
7) Sanyo Industries (5958)
Sanyo Industries makes and sells hardware and material for the construction industry. They are also involved in the manufacturing of ventilation systems and other related equipment.
- Current Assets = ¥152.4m
- Total Liabilities = ¥77.1m
- Net Net (after 33% discount) = ¥50.2m
- Market Cap = ¥45.5m
8) Sata Construction (1826)
Sata Construction specializes in the construction of civil engineering works and building construction works. The company also sells asphalt mixture and construction materials as well as rents construction equipment.
- Current Assets = ¥162.5m
- Total Liabilities = ¥84.4m
- Net Net (after 33% discount) = ¥52.1m
- Market Cap = ¥48.9m
9) Nakayamafuku (7442)
Nakayamafuku sells kitchen, dining, horticulture and interior goods in Japan. You can also find their products on Lazada and BHG in Singapore.
- Current Assets = ¥151.2m
- Total Liabilities = ¥72.5m
- Net Net (after 33% discount) = ¥52.1m
- Market Cap = ¥47.1m
10) Takisawa Machine Tool (6121)
This is another manufacturer and distributor of machine tools on this list. Takisawa specializes in computer numerical control (CNC) lathes and its business spans across Japan, Asia and North America.
- Current Assets = ¥227.9m
- Total Liabilities = ¥141.2m
- Net Net (after 33% discount) = ¥57.8m
- Market Cap = ¥55.4m
11) Money Partners Group (8732)
Money Partners Group is a foreign exchange margin trading business that serves both consumers (think money changers) and businesses. It also offers a SaaS solution for compliance, KYC, CMS and security for its corporate clients.
- Current Assets = ¥533.3m
- Total Liabilities = ¥443.1m
- Net Net (after 33% discount) = ¥60.1m
- Market Cap = ¥60m
12) Mutoh Holdings (7999)
Mutoh makes and sells industrial grade printers, scanners, 3D printers, CAD plotters and related products. To complement its products, Mutoh also offers related services and solutions. They have a global presence with offices in Japan, Europe, Australia and America.
- Current Assets = ¥133.8m
- Total Liabilities = ¥37m
- Net Net (after 33% discount) = ¥64.6m
- Market Cap = ¥55.8m
13) Marufuji Sheet Piling (8046)
Another manufacturer of construction materials, Marufuji Sheet Piling makes and distributes steel, iron and related products.
- Current Assets = ¥257.7m
- Total Liabilities = ¥116.9m
- Net Net (after 33% discount) = ¥93.9m
- Market Cap = ¥56.1m
14) GLOSEL (9995)
GLOSEL distributes integrated circuits, semiconductor devices and display devices which are used in the automotive and consumer industries.
- Current Assets = ¥254.6m
- Total Liabilities = ¥98.7m
- Net Net (after 33% discount) = ¥103.9m
- Market Cap = ¥83.1m
15) Kato Works (6390)
Kato Works makes and sells construction cranes, hydraulic excavators and related equipment in China and Japan. You have probably seen its cranes in Singapore as well.
- Current Assets = ¥570m
- Total Liabilities = ¥390.9m
- Net Net (after 33% discount) = ¥119.4m
- Market Cap = ¥106.8m
16) Foster Electric (6794)
Foster Electric makes and sells speakers, audio and electronic equipment globally. On top of supplying audio hardware to its customers, Foster Electric has its own range of high quality speakers and monitor brand, Fostex.
- Current Assets = ¥556.6m
- Total Liabilities = ¥273.8m
- Net Net (after 33% discount) = ¥188.5m
- Market Cap = ¥145.9m
17) Tsutsumi Jewelry (7937)
Tsutsumi Jewelry sells jewelry through its chain of jewelry specialty stores in Japan.
- Current Assets = ¥416.1m
- Total Liabilities = ¥13.6m
- Net Net (after 33% discount) = ¥268.3m
- Market Cap = ¥173m
Boring but undervalued
You would have noticed that most of the businesses that made the list of undervalued Japan stocks are in “boring”, matured industries namely in construction and manufacturing.
While they do not offer the excitement of AI stocks, these companies’ books remain strong and would likely continue to do well in the coming years.
That said, the issue with net net stocks is that some of these stocks may never unlock their true value, and that’s a risk you may have to be comfortable with.
How did we get this list of undervalued Japan stocks?
You may be wondering if you can screen for these stocks on your own. The answer is yes! Here’s how:
Benjamin Graham’s Net Net Strategy: How to find undervalued stocks quickly
“The Intelligent Investor” is a classic investing book that everyone owns but nobody has read. In it, Benjamin Graham, the father of value investing shared the Net Net strategy, which focuses on identifying stocks trading at a significant discount to their intrinsic value.
The Net Net approach allows you to uncover companies with net current assets greater than their market capitalization.
Graham’s Net Net strategy in the Japanese context would allow us to unearth potentially lucrative investment opportunities.
How to implement Net Net Strategy in the Japan markets?
- Calculate the Net Current Asset Value
Net Current Asset Value (NCAV) = (Current Assets – Total Liabilities)
- Discount the NCAV by 33%
For a wider margin of safety, Graham would discount the Net Current Asset value by 33% (or ⅓).
For example, if the NCAV per share of a stock was $9, Graham will only invest in it if the Current Price is $6.
- Additional Indicator: Piotroski F-score > 7
Piotroski F-Score is a quick criteria that allows us to check the financial strength of a company. Companies are scored from 0 – 9 where 0 is the weakest and 9 is the strongest.
This added indicator allows us to remove cheap companies with potential underlying issues which could be holding the company back.
By applying the Piotroski F-Score, we narrowed down the list of undervalued Japan stocks to the 17 stocks featured here.
Where can I get more undervalued Japan stock ideas?
The list of undervalued Japan stocks shared above were screened using the Net Net strategy with an additional Piotroski F-score > 7 criteria.
At this point, you may also be wondering…
Why has the Japan stock markets been neglected? Are there Risks?
Japan boasts one of the largest and most established stock markets in the world, with the Tokyo Stock Exchange (TSE) serving as its primary hub.
However, despite the country’s strong economic fundamentals and technological prowess, Japan’s stock markets have often been overlooked by international investors for several reasons.
- Japan experienced a prolonged period of economic stagnation in the 1990s, commonly referred to as the “Lost Decade.” This era of low growth and deflationary pressure left many investors cautious about allocating capital to Japanese equities.
- Japan’s business culture, characterized by complex corporate structures, cross-shareholdings, and conservative management practices, has often made it challenging for foreign investors to navigate the market effectively.
- Language barriers, differing accounting standards, and limited transparency have also deterred international participation. It may be difficult to get information about the listed companies in English, especially if the stock is mostly traded by Japanese shareholders.
However, recent efforts by the Japanese government to enhance corporate governance, increase shareholder returns, and promote foreign investment have revitalized interest in Japan stocks.
Why is Warren Buffett investing in Japan?
Regardless of your opinions on Warren Buffett, he remains one of the world’s most successful investors. Although he has traditionally focused on American companies, in recent years, he has turned his gaze towards the Land of the Rising Sun. Buffett’s decision to embrace Japan stocks highlights the country’s improving investment landscape and its untapped potential.
What Japanese stocks did Warren Buffett buy?
Since 2020, Warren Buffett had bought 5 Japanese trading houses: Mitsubishi (8058), Mitsui (8031), Itochu (8001), Marubeni (8002) and Sumitomo (8053).