How to Find the Most Undervalued Japanese Stocks

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The KonichiValue screener from the video with all the Japanese stock data:

Konichivalue Screener
1.18MB ∙ XLSX file
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  • 00:00 Intro

  • 00:25 The Goal

  • 03:14 The Tools I'm Using

  • 10:33 Using the Tools

  • 13:58 Stock Picking!

  • 17:22 Deep Dive into a Value Stock

  • 23:33 Outro

The Swedish Investor screener video:

An explanation of Joel Greenblatt’s Magic formula here

Summary: How to Find Undervalued Stocks in Japan

  • The video presents a method for identifying undervalued stocks in the Japanese market, emphasizing the use of specific tools, screening processes, and deep analysis of potential stocks.

Tools and Criteria for Screening:

  • Main Tools Used: The magic formula by Joel Greenblatt, inspired adjustments by the Swedish investor, Refinitiv Eikon (a comprehensive equity screening tool), Excel for data manipulation, and general web browsers for additional research.

  • Key Screening Criteria: Growth, Return on Invested Capital (ROIC), Enterprise Value to Earnings Before Interest and Taxes (EV/EBIT), Price to Earnings (P/E) ratio, and insider activities are the main factors considered. Each factor is assigned a weight in the overall evaluation of a company (see KonichiValue screener Excel sheet for full formula)

Screening Process:

  1. Initial Screening: Using Refinitiv Eikon, companies are filtered by sector exclusions, P/E ratio boundaries (between 5 and 25), and positive operating income in recent years. This process narrows down potential investment targets.

  2. Data Analysis: The extracted data is then analyzed in Excel, utilizing a template inspired by the Swedish investor, to rank companies based on the key criteria mentioned above.

Deep Dive Analysis:

  • I select Naigai Trans line and Value Commerce for a detailed examination. This involves checking for reliable earnings, adjusting revenue and operating margins to more sustainable figures, and investigating the company's qualitative aspects through various resources, including the Buffet Code website for ownership and management details.

Qualitative Analysis and Conclusions:

  • The deep dive includes looking into the company's earnings reports, management forecasts, competition, strategic costs, and any signs of declining business advantage.

  • For Value Commerce I conclude that despite initial quantitative attractiveness, qualitative factors such as increasing competition and strategic challenges may render a company less appealing for investment.

Lessons and Advice:

  • The video emphasizes the importance of thorough research, combining quantitative screening with qualitative analysis to understand a business deeply before investing.

  • It suggests that good investments require examining a company's reports, industry news, product testing, and understanding the business model.

  • The presenter offers resources and templates for viewers to conduct their own research and underscores the availability of various tools for value investing beyond those used in the video.

Conclusion:

  • Finding undervalued stocks is a rigorous process that involves a blend of quantitative screening and qualitative analysis. By meticulously examining a company's financials, market position, and future prospects, investors can identify true value investments in the Japanese market or elsewhere.

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Rei Saito