The Prudent Speculator newsletter recommends wide portfolio diversification, across many stocks and industries. Here, contributing editor Jason Clark looks at two recommendations that are also diversified by country; in this case, both are based in Japan.
Japanese telecommunications giant Nippon Telegraph and Telephone (NTTYY) recently reported that it earned $0.22 per share (mostly in line with the consensus estimate) in Q4 of fiscal 2021, bringing earnings per share for the full year to $2.34.
Revenue was flat for all of 2020 at $112.7 billion, although a modestly stronger yen throughout the year offered a 2% benefit in U.S. dollars. Gains in mobile offset declines across fixed line, wireless and telecom equipment segments.
The company recently paid a 40% premium to consolidate the remaining third of NTT Docomo that it didn’t already own. Management thinks the move will enhance flexibility and decision-making, although it is mainly an effort to use scale to placate calls by prime minister Yoshihide Suga to lower mobile fees.
CEO Jun Sawada guided for NTTYY to earn at least 1 trillion yen, or 300 yen per share in the current fiscal year, which translates to $9 billion, or close to $2.80 per share.
We think Docomo is one of the more attractive assets within Nippon’s portfolio, but we are mindful that the Japanese government effectively now owns a greater share given its 1/3 ownership of NTT.
In the intermediate-to-long term, we appreciate the firm’s exposure to trends in 5G, cloud and increased data transmission. Shares trade at less than 10 times fiscal 2021 earnings estimates and boast a net dividend yield of 3.2%. Our Target Price for NTTYY is now $35.
Takeda Pharmaceuticals (TAK), the Japanese drugmaker, reported full-year financial results for the fiscal year ended March. EPS topped expectations, coming in at 247 yen, compared to projections of 175 yen, on revenue of 3,198 billion yen.
Sales increases within Gastroenterology and Plasma-Derived Therapies were more than offset by declines in the Oncology, Neuroscience and Rare Disease segments, resulting in a 2.8% revenue decline for the business overall.
Looking to the current fiscal year, Takeda is projecting revenue of 3,379 billion yen, an increase of more than 5% despite headwinds from non-recurring divestitures, with the current analyst EPS estimate standing at 408 yen, which translates to $1.88 per U.S. share (American Depository Receipt).
We like that Takeda is doubling down on R&D and appears to have a lot of promise in its pipeline with six regulatory submissions for new molecular entities and seven to be involved in studies across 10 indications scheduled for FY 2021.
We appreciate the global footprint and stable of premier franchises that the Shire purchase offers, and that headway is being made on the debt used to finance the acquisition (currently $41.9 billion down from $48 billion a year ago). TAK shares change hands around 9 times estimated earnings and the net dividend yield is 4.4%. Our Target Price now stands at $26.
