NTDOY - 3 Deeply Undervalued Japanese Stocks to Buy Now: May 2024

2024-05-31 07:45:00 ET

InvestorPlace - Stock Market News, Stock Advice & Trading Tips

The Japanese stock market is worth watching for U.S. investors who seek well-run businesses, established brands and very reasonable valuations. Indeed, after the year-to-date run in American stocks, especially those in the tech sector, it makes sense to have a gander at what’s on display in the Japanese stock market, as it looks to add to a recent breakout that’s been decades in the making.

Perhaps the number-one reason to check out Japanese stocks is that Warren Buffett’s Berkshire Hathaway (NYSE: BRK-A , NYSE: BRK-B ) has made sizeable investments in select Japanese trading companies in recent years. Such investments may not grow, but they do shed light on a market that I believe many U.S. investors should consider inching into, whether it be the reasonable valuations or the international diversification.

Let’s look at three Japanese stocks I find most interesting, as U.S. stocks close off May with caution and a slight pullback.

Fast Retailing (FRCOY)

Fast Retailing (OTCMKTS: FRCOY ) is a Japanese clothing retailing firm that’s the parent of UNIQLO. The clothing retailer isn’t just a hit in Japan, it’s also gained in popularity in international markets. As Fast looks to expand UNIQLO’s presence across more global markets, it may very well disrupt the fast fashion industry as we know it.

Not only are UNIQLO’s unique (and very Japanese) fashions a hit with select international crowds, but they’re not typical “fast fashions” you’d come to expect. UNIQLO wears may be affordable, but many selections are actually quite timeless and not subject to traditional fashion fads. Amid inflation, UNIQLO has been a great place to shop to get bang for one’s limited buck.

Fast has been able to drive some impressive same-store sales growth (SSSG) even in today’s challenged environment. As the retailer continues to execute its sound growth plans, perhaps FRCOY stock could be positioned for a fast turnaround after its latest 19% correction off 52-week highs.

Nintendo (NTDOY)

Nintendo (OTCMKTS: NTDOY ) is a Japanese video gaming company that we’re all familiar with. It’s not only the company behind the Nintendo Switch console and the wide selection of exclusive titles; it’s also behind legendary brands such as Pokemon. Undoubtedly, video games just wouldn’t be the same without Nintendo.

With a new console (Switch 2.0?) release up ahead, I do view NTDOY stock as worth consideration before the device has a chance to “level up” the stock. I not only think the next iteration of the Switch will be a hit, but I also view the launch as opportunistic, as its video-game console rivals look to push forward only incremental upgrades to the existing console generation (think Pro editions or handhelds).

Compared to rivals, Nintendo looks competitive ahead of its new Switch launch. Perhaps it’s time to switch to the stock while it’s going for just 19.8 times trailing price-to-earnings (P/E), ahead of Nintendo’s much-awaited console catalyst.

Toyota Motor (TM)

Finally, we have the Japanese automaker Toyota Motor (NYSE: TM ), which has one of the best reputations in the industry. Undoubtedly, Toyota is the epitome of Japanese engineering. As the company steers forward into the hybrid and fully electric vehicle (EV) age, I like the stock and its modest multiple.

At writing, TM stock goes for 9.2 times trailing P/E, making it one of the deepest value plays on the Japanese market. As an added bonus, U.S. investors don’t need to go “over the counter” for shares, as they trade on the NYSE .

With TM stock recently plunging 16% after its parabolic melt-up that started back in early 2023, I think there’s a great window to buy. While Toyota isn’t the top EV stock to own right now, its slow and steady electrification plans may ultimately be the model that helps it shift gears without stumbling considerably.

If you think hybrid autos are the nearer-term future while fully electric is more of a long-term target, TM stock looks to be the stock to own.

On the date of publication, Joey Frenette held shares of Berkshire Hathaway (Class B). The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

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