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Nidec: Motor Maker Revs up Japan

10/08/2013 10:00 am EST


Mark Skousen

Editor, Forecasts & Strategies, High-Income Alert

Top hedge fund managers look beyond the United States to find the best investment opportunities. And we do, too. Indeed, my latest recommendation is a Japanese stock, says Mark Skousen, editor of Hedge Fund Trader Alert.

Let me make the macroeconomic case first, starting with valuations. Japanese stocks are cheap. If the Nikkei 225 rose 70%, it still would be cheaper than the S&P 500 on a price-to-book value basis. In fact, the Tokyo market could triple from here and it would still be no higher than it was in 1989!

You shouldn't fight the Fed—and the same is true of Japan's central bank. The Bank of Japan is in an ultra-accommodative mode right now, determined to weaken the yen until Japanese inflation hits 2%. That won't be anytime soon. Right now, Japanese consumer prices are stagnant.

A weaker yen strengthens exporters, the backbone of the Japanese economy. As Japanese cars, televisions, machinery, and electronics are priced cheaper overseas, sales will rise…and so will corporate profits.

And that brings me to Nidec (NJ). Based in Kyoto, Japan, Nidec manufactures small- to mid-size motors, fan motors, and pivot assemblies used in dozens of IT products, as well as home appliances, automobiles, office equipment, and industrial machinery.

The CEO and Chairman Shigenobu Nagamori founded the company in 1973 with the intention of making it the world leader in precision motors.

He is in the process of making that dream a reality, spending wisely on research and development (R&D) and acquiring strategic partners in the industry. Last year, for instance, Nidec acquired Minster Machine Company, a leading US manufacturer of press machines.

The company's supply chain was negatively affected by the Thai flooding disaster in October 2011. But the company is now in full recovery mode. Earnings are likely to grow from 10 cents a share this fiscal year (which ended in March) to more than a dollar a share during the next 12 months.

Management appears to agree with my analysis. The company has been busily buying back its own shares, repurchasing more than 1.35 million shares in the last 21 months. This is a good thing.

When you divide rising earnings by a declining number of shares outstanding, you get greater growth in earnings per share. And earnings are already set to rise ten-fold. So pick up Nidec at market. And place a protective stop at $16.50.

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