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number cruncher

Pedestrians walk past Japan Exchange Group Inc.'s Tokyo Stock Exchange (TSE) on the first trading day of the year in Tokyo, Japan, on Friday, Jan. 4, 2013.Kiyoshi Ota/Bloomberg

Mr. Bowman is a portfolio manager at Wickham Investment Counsel Inc.

What are we looking for?

Japan's Prime Minister Shinzo Abe has promised to do more to end deflation, and to weaken the yen. His government's top priority is to revive an economy that, last quarter, fell into its fifth technical recession in the past 15 years. My colleague Sean Pugliese and I decided to have a look at some Japanese stocks from a value metric.

The screen

By some measures, Japanese stocks are cheaper than they have been in a generation, and an intriguing play on a global recovery. The Tokyo Stock Price, or Topix index, is 75 per cent lower than its peak in 1989. Japanese stocks are by far the world's cheapest major market in terms of their book value, and the index generates a 2.2-per-cent dividend yield, more than three times the yield of the government's 10-year bond.

We have ranked a selection of Japanese companies by their price-to-earnings ratios. The P/E ratio shows how much investors are willing to pay per dollar of earnings. We are looking for a low number.

We are big believers in the price-to-cash-flow (P/CF) ratio. It evaluates the price of a company's stock relative to how much cash flow the company generates. It provides a better picture of a company's true earning power, and a low number is preferable.

The screen also includes the dividend yield and the total rate of return in 2012. Only companies with a market capitalization larger than $10-billion (Canadian) are included.

What did we find?

On average, these companies score very well. Here in Canada we are familiar with some of the names, such as Mitsubishi, Hitachi, and Isuzu Motors.

Nippon Telegraph is the largest telecommunications company in the world in terms of revenue. Inpex is an international oil and gas exploration and production company, with a shale gas project in British Columbia. Both of Japan's railways, Central Japan and East Japan, made the list and together they transport at high speed more than 300 million passengers a year. NTT Docomo is predominantly a mobile phone operator in Japan with 53 million customers. It also owns part of the largest mobile phone operator in India, which boasts 9 million new customers every month.


The new government has an understanding of the impending danger, and a sense of urgency about boosting the Japanese economy. Don't be surprised if Japanese equities start playing catch-up with the rest of the world.