Navigation Chart for the Corona Market 3.0
May 4, 2021 (Tuesday) Sunny (Issue 5/2)
- Navigating Corona Market 3.0: Finding solid performers ahead of Growth and Value
The upside of Japanese stocks is weighed down.
The Nikkei Stock Average recovered to the 30,000 level for the first time in 30 years in mid-February, but since then the level has gradually declined and recently ranges around 29,000.
In early April, while the U.S. S&P 500 rose about 6%, the Nikkei fell about 1%, underscoring a sense of lagging behind.
- Navigating Corona Market 3.0: Finding solid performers ahead of Growth and Value
The spread of the novel coronavirus continues, and from April 25 a third state of emergency was declared for Tokyo, Osaka, Kyoto, and Hyogo.
Since the COVID-19 pandemic, the market can be divided into two phases.
First, during the summer of 2020 when major central banks implemented large-scale monetary easing and rates fell sharply, growth stocks led by U.S. GAFAM were dominant.
Next, from the fall of 2020 when the effectiveness of vaccines from Pfizer and others was confirmed.
In that phase, value stocks, which looked cheap by measures such as PBR (price to book value), tended to rise more than growth stocks.
With a continued accommodative financial environment, traders began buying cyclicals that are sensitive to the macroeconomy based simply on macro moves.
This trend accelerated in 2021.
- Navigating Corona Market 3.0: Finding solid performers ahead of Growth and Value
However, U.S. long-term interest rates, which were around 0.9% at year-end 2020, rose sharply to around 1.7% by March this year.
As the Federal Reserve’s quantitative easing tapering began to be anticipated, the one-way rotation in styles started to fade, signaling an end to the market’s one-directional tilt.
- Navigating Corona Market 3.0: Finding solid performers ahead of Growth and Value
“The market that has chased from the bottom toward hope is now moving into a phase where we confirm earnings growth.” Goldman Sachs Securities Strategist.
In March, the QUICK Consensus DI fell for the first time in nine months. The hopeful phase where improving earnings and rising stock prices moved in parallel has changed its premises.
In the first and second acts of the Corona Market, one could invest in themes that drove the market higher; in the third act, the investment strategy diverges greatly.
We will examine how the progress of Corona Market 3.0 unfolds.
- Navigating Corona Market 3.0: Misty Sea, Not Losing Course
Japan’s stock outlook remains opaque. Although many expect a recovery in overall earnings to support gains, the degree of rise is expected to be modest.
Stock selection: Three compasses — “low volatility,” “ROE 8% or higher,” and “PER below 20x.”
Main stocks with high earnings quality yet undervalued stock prices
Toyota <7203> [Close 8,127 yen] Market cap 27,007.8 billion yen ROE 10.6% PER 11.8x
KDDI <9433> [Close 3,306.0 yen] 7,686.7 billion yen ROE 13.1% PER 12.0x
Itochu Corporation <8001> [Close 3,408.0 yen] 5,474.2 billion yen ROE 14.7% PER 10.8x
Mitsubishi Corporation <8058> [Close 3,020.0 yen] 4,569.0 billion yen ROE 8.0% PER 1.02x
JT (Japan Tobacco) <2914> [Close 2,044.0 yen] 4,155.0 billion yen ROE 11.0% PER 13.5x
Seven-Eleven Japan <3382> [Close 4,699 yen] 3,998.7 billion yen ROE 9.5% PER 15.1x
Mitsui & Co. <8031> [Close 2,303.5 yen] 3,833.1 billion yen ROE 10.5% PER 8.8x
Fujitsu <6702> [Close 17,405 yen] 3,395.8 billion yen ROE 13.8% PER 17.2x
Bridgestone <5108> [Close 4,377 yen] 3,207.3 billion yen ROE 10.3% PER 12.8x
- Navigating Corona Market 3.0: Misty Sea, Not Losing Course
Share buybacks: Resurgence of a trend — focus on “earnings + first-half of last year’s postponements”
Stocks with relatively high buyback expectations
Toyota <7203> [Close 8,127 yen] Market cap 27,007.8 billion yen Net profit growth 18% PBR 1.2x
Mitsubishi UFJ Financial Group <8306> [Close 578.0 yen] 7,771.6 billion yen 7% 0.4x
Tokyo Marine Holdings <8766> [Close 5,230 yen] 3,702.3 billion yen 56% 1.0x
Fujifilm Holdings <4901> [Close 7,087 yen] 3,602.3 billion yen 2% 1.3x
Sumitomo Mitsui Trust <8309> [Close 3,720 yen] 1,384.8 billion yen 15% 0.5x
Yamaha <7951> [Close 5,950 yen] 1,164.6 billion yen 56% 3.0x
KODEX Communications <9435> [Close 21,980 yen] 1,089.0 billion yen 11% 2.9x
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