Japan's Euro-Related Stocks Among Best Bargains, Schroder's Maeda Says

Japanese companies that export to Europe, such as Ricoh Co. and Konica Minolta Holdings Inc., are among the nation’s cheapest stocks relative to profit outlook, said Schroder Investment Management (Japan) Ltd.

Ricoh, a copier maker that gets 23 percent of its sales in Europe, dropped 18 percent from April 30 to June 15 amid concerns debt crises in some euro-zone countries will spread and stall the region’s recovery. In the same period, Konica Minolta, a maker of film used in liquid-crystal displays that counts Europe as its biggest market, lost 19 percent, while the MSCI World Index fell 7.5 percent.

“There are still concerns about the euro, but it should come back from recent declines, which were caused by market over-reactions,” Shogo Maeda, head of Japanese equities at Schroder Investment in Tokyo, said today. “Some exporter shares are oversold, considering the earnings outlooks. The global economy is still on a recovery trend.”

The euro declined to as low as 108.06 yen on June 7 from its April high of 127.75. Since then it has climbed 2.6 percent. A weaker euro reduces income for exporters when repatriated.

Ricoh shares are valued at 20.3 times estimated earnings, compared with 25.9 times reached on April 2, the highest level this fiscal year. Konica Minolta’s price earnings ratio fell to 17.6 times from the high of 23.3 times on April 27.

“There are good opportunities for bargain hunting,” said Maeda, who helps manages 678 billion yen ($7.4 billion) at Schroder. “Shares have fallen enough to create upside potential.”

Nintendo Cheap

Nintendo Co., the world’s biggest maker of portable video- game players that earns 40 percent of its revenue in Europe, is cheap now because the downside risks of its earnings have been priced in since its profit peaked at 279 billion yen in the year ended March 2009, Maeda said.

Among carmakers, Honda Motor Co. has attractive valuations, he said. Honda shares are valued at 12.7 times estimated earnings, lower than 21.8 times for Toyota Motor Corp. and 13.5 times for Nissan Motor Co.

An HSBC Holdings Plc quarterly fund managers survey for the April-to-June period showed 56 percent of fund managers hold underweight position on Europe equities amid the region’s debt crisis, higher than 40 percent in the previous quarter. The percentage who were underweight on Japanese equities rose to 63 percent in the second quarter from 50 percent in the preceding period.

Maeda also recommended trading companies including Mitsubishi Corp., Mitsui & Co. and Itochu Corp. as candidates to buy.

“Over the long term, stocks of trading firms are attractive,” said Maeda. “Demand for natural resources cannot decline because resources are limited while the population will increase.”

To contact the reporters on this story: Akiko Ikeda in Tokyo at iakiko@bloomberg.net. Toshiro Hasegawa in Tokyo at thasegawa6@bloomberg.net.

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