Japan’s Boom?

In Monday’s Goldman Guide we discussed the Japanese economy.

While today’s tagline is somewhat tongue-in-cheek, the point is made that there could be some money to be made in an ADR to gain some exposure there possibly in the financial or industrial sectors.

Mitsubishi UFJ Financial Group, Inc. (NYSE – MTU - $7.41 - NR) provides financial services in Japan and internationally. MUFG (Mitsubishi UFJ Financial Group, Inc.) is one of the world’s leading financial groups, with total assets of approximately $2.3 trillion as of December 31, 2014. Headquartered in Tokyo and with approximately 350 years of history, MUFG is a global network with 1,100 offices in over 40 countries. The Group has over 140,000 employees and about 300 entities, offering services including commercial banking, trust banking, securities, credit cards, consumer finance, asset management, and leasing. The Group’s operating companies include Bank of Tokyo-Mitsubishi UFJ, Mitsubishi UFJ Trust and Banking Corporation (Japan’s leading trust bank), and Mitsubishi UFJ Securities Holdings Co., Ltd., one of Japan’s largest securities firms.

The chart below illustrates the one year performance of MTU as well as big plus on the technical metric, EMA. The stock is trading well above the 200-day EMA.

MTU 1-Year Chart, 200-Day EMA

(Source: www.otcmarkets.com)

Wall Street estimates suggest the company will record nearly $37 billion for the year ended March 2016, with EPS of $0.60, which represents a P/E of around 12x and matches well with its favorable .82 price/book ratio. This ratio is a 30% discount to peers such as JP Morgan (NYSE – JPM – NR.)

A recent catalyst to drive the stock higher is news that MTU is buying the Fund Administration business of UBS Group AG (NYSE – UBS), and the Company plans another aggressive share buyback later this year. Increased interest rates should help the forward valuation as well this year.

MTU is an undervalued play on the very slow, but steady growth of the Japanese economy. We think the stock could climb steadily to $9 level over the course of the rest of the year.

On a side note, about two weeks ago we featured IXYS Corporation (NASDAQ – IXYS - $16.33) in the Market Monitor as a possible mover on a pure momentum play. Several positive news stories have impacted the stock over that time and it has climbed almost 22% in that time.We originally called for a $15 target and the stock has skyrocketed past that level. It would certainly behoove all of those who have positions in IXYS to possibly lock in gains at the $15 strike level in an out-of-the-money protective put strategy.

Have a great day!

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