“$45 Japanese Juggernaut to Hit $65 by February 1 GUARANTEED”

By Travis Johnson, Stock Gumshoe, January 4, 2011

Well, as you can imagine, the “GUARANTEED” part of that headline isn’t my word — nor are the rest of ’em, for that matter, I borrowed it all from the latest teaser for Robert Hsu’s Asia Edge newsletter.

In that ad, Robert (or his intrepid copywriters) tell us about a Japanese exporter that will jump dramatically in the weeks ahead, releasing earnings on February 1 — and of course, he’d be happy to tell you all about this stock if you’ll subscribe to his premium priced newsletter (Asia Edge is “normally” $2,995 — though with this promo it was offered at $995 in a 24-hour sale … and, you’ll probably be unsurprised to hear, the link for that 24-hour sale seems to still be available a week later, though I didn’t, of course, try to place an order).

So our task is before us: Figure out which “Japanese Juggernaut” Hsu is teasing. His Asia Edge newsletter has been around for many years, much like his China Strategy letter that’s more specifically focused on the China trade, and in this letter he has had a tendency to both give himself more leeway in terms of listings, choosing stocks that don’t have US listings or ADRs, and to broaden the universe of potential picks (in addition to the usual suspects like China and Japan he’s now including Brazil, Australia and Chile, along with more clearly Asian countries like Malaysia, Vietnam and Indonesia). He also pitches some of his other current ideas, but the main impulse to subscribe is his “Buy Now!” pitch for this Japanese stock.

Which is?

Let’s look at the clues, shall we? We already know about the February 1 earnings release, so that’s a good one — but there’s a bit more:

“Over the past 30 days as the yen has spiraled south, the same European insiders, institutional investors and mutual fund investors who have been shunning Japanese stocks for the past decade have been loading up on our top trade for the same reason we have.

“They see a huge breakout on earnings come February 1 and are positioning themselves now to profit-all thanks to these incredibly powerful forces that should hand investors a quick 30% to 50% gain in the next eight weeks:

“The falling yen
“A red-hot product line
“Brand-name popularity in the U.S.
“Rising profit margins, and
“A rock-bottom of PE of 10 that’s attracting millions of new investment from insiders, institutional investors and mutual fund investors.

“For these reasons, if you don’t act now-TODAY-and take a position in our a-rated Japanese exporter now, I guarantee you’ll kick yourself for years as the yen spirals south and this company’s earnings shoot through the roof come February 1.”

And we also get one little paragraph with a few helpful specifics:

“This is why our top Japanese trade, an overlooked brand-name electronics exporting juggernaut, has seen its net profit jump from a 50 billion yen loss to a 72 billion yen profit in just the last quarter-all while increasing operating profits a whopping 402%.”

So that’s quite enough to toss into the good ol’ Thinkolator — and when I did just that a few seconds ago, the answer came through in bold letters: this must be …

Hitachi (HIT)

Which, conveniently enough, does trade on the NYSE and is easy as pie to buy if you so choose — it’s also definitely a large cap company, and a global conglomerate that it would be tough for anyone to fully understand in detail.

Here in the US we’re most likely to know them for their LCD display business, which they’re in the process of partnering off, or for their nuclear power plant work or their hard disk drives (also likely to be spun off in an IPO soon), but, like Siemens or GE, they have dozens of specialties that are broadly industrial or technological, everything from health care imaging to elevators to bread machines.

And they did post a nice jump to profitability in their last quarter, exactly as teased (loss of 50 billion yen to profit of 72 billion) — which, along with a weak Yen and talk about restructuring and reorganizing the company to focus on their most profitable segments and jettison or partner off their laggards, has helped to drive the share price higher in the last month or two. The stock is no longer at $45, though it wasn’t there when Hsu emailed that ad to all of us eager readers, either (when I got the ad on December 28 the shares were just over $50, they’re now at $53 or so — so how about that, he gets to sound prescient already!) Despite the description of this as a “$45 Juggernaut” it hasn’t seen $45 since that earnings release in early November.

But as Hsu teases, it does trade at a pretty reasonable-looking PE — though analysts foresee weakness, the trailing PE of 10 is better than the forward estimated PE of 13, which means, all else being equal, that the folks in green eyeshades (or Armani pinstripes, perhaps) think they’re going to make less money next year than they made this year. Though, to be fair, that’s just the Yahoo summary of estimates, which apparently tallies up the guesses of … ONE analyst for this stock, which doesn’t give me a huge amount of confidence that the estimate will be on target, particularly because, according to this same Yahoo summary, that analyst has been way, way off target for each of the last three quarters. The Morningstar summary has a much flatter picture, with estimates from 13 analysts effectively projecting that 2012 will be about the same as 2011, so if they’re right then the forward PE is also right around 10.

Robert Hsu may know something I don’t, and I expect he’s far more informed about Hitachi than I am — but a flat or weak year next year (starting in April) wouldn’t be that shocking. They have not been a particularly robust or consistent revenue-growth company over the last five years (the last year, ending March 2010, was their weakest revenue year of those five). The stock has had some heady days, to be sure — it was around $150 at the peak of the dot-com bubble, and before the financial crisis it typically traded, with some stability, in a range between $60-80 for several years. When the most recent crisis hit, the shares tanked — getting down to $30 or so before recovering quite nicely this year.

As I noted, Hitachi has a number of different subsidiaries, many of which are publicly traded and may or may not be consolidated into the corporate results, and many of which buy and sell from each other quite actively — so the earnings releases are a bit overwhelming to review. They do a nice job of breaking out their segment revenue, both geographically and by product type, on their Investor Relations page, so you can get some idea of how the business is going from reviewing those sections.

So … will the shares hit $65 when their next earnings release comes out? I certainly have no idea — they are trending sharply higher in recent days, they are reasonably priced if you think the global economy will continue to grow and that a weak Yen will benefit exporters (most of their sales are still in Japan, per their geographic segment breakdown, but I assume that some of the stuff they report as selling in Japan probably also ends up being exported). Catalysts like the possible IPO of their storage segment (Hitachi GST) or big new orders for infrastructure or transportation equipment or services could certainly help to get them more investor attention, but I don’t know whether Hitachi will be sexier than usual in the months ahead or not.

If you’ve got an opinion on Robert Hsu or Hitachi, feel free to shout it out with a comment below. And if you’ve had the pleasure (or pain) of subscribing to his Asia Edge newsletter, please take a moment to review it for your fellow investors by clicking here. Thank you!

Are you getting our free Daily Update
"reveal" emails? If not,
just click here...



This site uses Akismet to reduce spam. Learn how your comment data is processed.

Inline Feedbacks
View all comments