3 Plays from Mitsubishi

11/11/2014 10:00 am EST


Yiannis Mostrous

Editor, The Capitalist Times

Our positive outlook for Japanese equities remains undimmed for patient investors who could reap the rewards if the Abe government manages to end deflation, explains Yiannis Mostrous, editor of Capitalist Times.

Japan's asset re-inflation cycle and a potential expansion of the central bank’s balance sheet should support equities and the domestic economy. Here’s an update on our favorite Japanese equities.

Mitsubishi Estate (8802:JP)(MITEY:OP)

Although Mitsubishi Estate has tumbled significantly from last year’s high, the stock remains a good bet on Japan’s efforts to restructure its economy and drive inflation.

The blue-chip company owns and manages about 30 office buildings in the Marunouchi area, a prestigious business district near Tokyo Station.

With vacancy rates declining in this area, Mitsubishi Estate has pushed through rent increases of 10% to 20% for new tenants and all indicators point to rents continuing their climb in coming quarters.

And with a debt-to-equity ratio of 0.8, the real estate giant boasts a strong financial position relative to its peers.

Mitsubishi Estate’s American depositary receipt continues to rate a buy up to US$30 for patient investors with a longer-time horizon.

Mitsubishi UFJ Financial Group (8306:JP) (MTU:NY)

Mitsubishi UFJ Financial Group, Japan’s largest commercial bank, remains our favorite way to gain exposure to the financial sector. It boasts an extensive overseas network, including an impressive US footprint via its ownership of Union Bank and 20% equity interest in Morgan Stanley (MS).

The stock remains cheap by most valuation measures, though additional upside catalysts will need to emerge for the share price to rally significantly.

If Prime Minister Abe’s policies stimulate lending and bolster interest rates, Mitsubishi Financial Group’s stock would receive a welcome boost.

Households shifting more of their savings to the equity markets would also be a boon for the bank. With a yield of 3.3%, Mitsubishi UFJ Financial rates a buy up to US$7.50.

Mitsubishi Electric Corp. (6503:JP) (MIELY:OP)

Mitsubishi Electric Corp. manufactures a wide range of electrical and electronic equipment, including generators, elevators, factory automation systems, air conditioners, and TVs.

In the second quarter, Mitsubishi Electric grew its operating profit 45% from year-ago levels, fueled by robust demand in its industrial automation segment.

Mitsubishi Electric Corp’s local shares rate a buy up to JPY1,600. The company’s ADR rates a buy up to US$26.00, but prospective investors should note that these over-the-counter shares trade thinly.

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