Technical Analyst, Vermilion Research

Joe Jasper

Technical Analyst

Technical and Quantitative Research

Vermilion Research

Vermilion’s objective is to deliver timely, actionable, and unique technical research to professional investors through the application of our various technical indicators.

Our research strategists seek to highlight securities which we believe are at major inflection points, based on our various technical and quantitative indicators, and offer asymmetric risk/return profiles. Our unique research methodology, centered on relative strength, enables our strategists to deliver superior investment recommendations.

Our process begins by organizing the universe of actively traded stocks into discrete sectors, then into industry groups. We then apply our technical and quantitative tools to identify developing price trends. Once attractive trends are identified within a selected sector or group, we screen for individual stocks which we believe offer the best risk/reward profile. We provide a historical perspective that often reveals, through our long-term charts, how price patterns often repeat themselves over time.

Technical Analysis

<ul>
<li>The bear market rally that we were on watch for started last week, confirmed by the bullish reversals on the DAX, Hang Seng, MSCI China (MCHI-US), and China Internet (KWEB-US).</li>
<li>Is this just another bear market rally, or will indexes are able to make a higher low and start a new bull market? Either way, it's a start.</li>
<li>We highlight attractive stocks from a bottoms-up perspective, spanning several Sectors. Over half hail from Japan, where the TOPIX Small index is reversing its downtrend.</li>
</ul>


The bear market rally that we were on watch for started last week, confirmed by the bullish reversals on the DAX, Hang Seng, MSCI China (MCHI-US), and China Internet (KWEB-US).
Is this just another bear market rally, or will indexes are able to make a higher low and start a new bull market? Either way, it's a start.
We highlight attractive stocks from a bottoms-up perspective, spanning several Sectors. Over half hail from Japan, where the TOPIX Small index is reversing its downtrend.


Cautiously Optimistic Following Downtrend Reversals; Japan Continues to Lead; Bottoms-Up Stock Rec's

'Quantamental' Japan Specialist, LightStream Research

Campbell Gunn

'Quantamental' Japan Specialist

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

Thematic (Sector/Industry)

<p style="text-align: center;"><strong>• EARNINGS MOMENTUM TURNS POSITIVE •</strong></p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/188/535/original/2021-02-14_09-01-24.png?1613260898" class="editor-image img-responsive" data-smartkarma-image-id="188535"></figure><div class="content-caption">Source for all charts &amp; tables: Japan Analytics</div></section><p><strong>POSITIVE EARNINGS MOMENTUM</strong> - For the first time in just over one year and driven by a strong recovery in the index-heavy <strong>Auto</strong> Sector, our Market Composite Results &amp; Revision Score - a measure of earnings momentum - has turned positive. Meanwhile, the Cabinet Office Leading Indicator of Business Conditions which is indexed to August 2015, has yet to rise above 100 and declined by 120 basis points for December.</p><section class="figure"><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/188/537/original/2021-02-14_08-23-29.png?1613262285" class="editor-image img-responsive" data-smartkarma-image-id="188537"></figure></section><p><strong>SECTOR BREAKDOWN</strong> - The leading Sectors, as measured by the change in Results &amp; Revision Score, are<strong> Other Commercial Products</strong>, <strong>Autos</strong>, <strong>Metals</strong>, <strong>Building Materials</strong>, and <strong>Other Consumer Products</strong>. The laggards are <strong>Utilities</strong>, <strong>Internet</strong>, <strong>Food</strong>, <strong>Beverages &amp; Tobacco</strong>, <strong>Retail</strong>, and <strong>Commercial Services</strong>. As in other markets, cyclicals leading the recovery, and, as a result, driving Japan's indices to new multi-decade highs.</p>
<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/188/538/original/2021-02-14_08-22-44.png?1613262793" class="editor-image img-responsive" data-smartkarma-image-id="188538"></figure></section><p><strong>FORWARD VALUATIONS</strong> - While the trailing Market Composite PER remain above 30 times,  a ¥7.6 trillion increase in forecast Net Income from the low point if 2020, has reduced the forward multiple to 28.2 times. By the end of May, most March year-end companies will have made forecasts for the year to March 2022 - a decline to below 25 times is likely, assuming Total Market Value is at current levels.</p>
<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/188/539/original/2021-02-14_08-14-17.png?1613262839" class="editor-image img-responsive" data-smartkarma-image-id="188539"></figure></section><p><strong>ALL-TIME US$ HIGH &lt;10% AWAY</strong> - While much is being written about the new thirty-year high for the TOPIX index, many will have missed the proximity of TOPIX in US dollars terms to a new all-time high, which would occur with a combined 9.5% increase in the equity market and the Yen. A 4.3% rise in TOPIX and a USDJPY rate of 100 is all that is required and would be a welcome feather in the cap of the recently beleaguered PM Suga's cap. </p>
<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/188/540/original/2021-02-14_10-05-46.png?1613264814" class="editor-image img-responsive" data-smartkarma-image-id="188540"></figure></section><p><strong>RSI &gt;80</strong> - Tempering the current bullishness are the RSI of over 80 and a Toraku index close to 120. Both suggest near-term caution is warranted.</p>
<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/188/541/original/2021-02-14_10-15-17.png?1613265332" class="editor-image img-responsive" data-smartkarma-image-id="188541"></figure></section><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/188/542/original/2021-02-14_10-20-42.png?1613265721" class="editor-image img-responsive" data-smartkarma-image-id="188542"></figure></section><hr></section><p style="text-align: center;"><br><strong>• RESULTS &amp; REVISIONS SUMMARY - 12th FEBRUARY •</strong></p><div><p>Of Friday's 723 results announcements, 64% scored positively for earnings momentum despite trailing revenues falling by 3% on average and a 3.9 point decline in operating margins. 17% of companies were in the red for the quarter.  63% of the 360 annual forecasts/revision announcements scored positively, and the average Forecast/Revision score was +10.3 points.</p></div><div><p style="text-align: center;"><strong>• BEST &amp; WORST •</strong></p></div><div>
<p>The 'best' larger-cap announcements came from <a href="https://www.smartkarma.com/entities/yamaha-motor-co-ltd" target="_blank" data-smartkarma-citation="entities:7411:1" rel="noopener">Yamaha Motor (7272 JP)</a>,  <a href="https://www.smartkarma.com/entities/japan-post-bank-co-ltd" target="_blank" data-smartkarma-citation="entities:838:1" rel="noopener">Japan Post Bank (7182 JP)</a>, and <a href="https://www.smartkarma.com/entities/toppan-printing-co-ltd" target="_blank" data-smartkarma-citation="entities:11875:1" rel="noopener">Toppan Printing (7911 JP)</a>; the 'worst' were from <a href="https://www.smartkarma.com/entities/otsuka-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:12292:1" rel="noopener">Otsuka Holdings (4578 JP)</a>, <a href="https://www.smartkarma.com/entities/sumitomo-dainippon-pharma-co" target="_blank" data-smartkarma-citation="entities:1935:1" rel="noopener">Sumitomo Dainippon Pharma (4506 JP)</a>, and <a href="https://www.smartkarma.com/entities/lion-corp" target="_blank" data-smartkarma-citation="entities:16576:1" rel="noopener">Lion (4912 JP)</a>.  <a href="https://www.smartkarma.com/entities/pola-orbis-holdings-inc" target="_blank" data-smartkarma-citation="entities:2287:1" rel="noopener">Pola Orbis (4927 JP)</a> and <a href="https://www.smartkarma.com/entities/asahi-group-holdings-ltd" target="_blank" data-smartkarma-citation="entities:10482:1" rel="noopener">Asahi Group (2502 JP)</a> take the prizes for optimism.  For more, see the <strong>DETAIL</strong> section below.</p>
<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/188/605/original/2021-02-15_06-00-48.png?1613336460" class="editor-image img-responsive" data-smartkarma-image-id="188605"></figure></section><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/188/606/original/2021-02-15_06-01-37.png?1613336511" class="editor-image img-responsive" data-smartkarma-image-id="188606"></figure></section><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/188/608/original/2021-02-15_06-05-12.png?1613336726" class="editor-image img-responsive" data-smartkarma-image-id="188608"></figure></section><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/188/610/original/2021-02-15_06-05-57.png?1613336771" class="editor-image img-responsive" data-smartkarma-image-id="188610"></figure></section><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/188/611/original/2021-02-15_06-06-35.png?1613336808" class="editor-image img-responsive" data-smartkarma-image-id="188611"></figure></section><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/188/612/original/2021-02-15_06-07-12.png?1613336846" class="editor-image img-responsive" data-smartkarma-image-id="188612"></figure></section><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/188/613/original/2021-02-15_06-10-36.png?1613337047" class="editor-image img-responsive" data-smartkarma-image-id="188613"></figure></section><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/188/615/original/2021-02-15_06-11-21.png?1613337091" class="editor-image img-responsive" data-smartkarma-image-id="188615"></figure></section><p></p>
</div>

• EARNINGS MOMENTUM TURNS POSITIVE •Source for all charts &amp; tables: Japan AnalyticsPOSITIVE EARNINGS MOMENTUM - For the first time in just over one year and driven by a strong recovery in the index-heavy Auto Sector, our Market Composite Results &amp; Revision Score - a measure of earnings momentum - has turned positive. Meanwhile, the Cabinet Office Leading Indicator of Business Conditions which is indexed to August 2015, has yet to rise above 100 and declined by 120 basis points for December.SECTOR BREAKDOWN - The leading Sectors, as measured by the change in Results &amp; Revision Score, are Other Commercial Products, Autos, Metals, Building Materials, and Other Consumer Products. The laggards are Utilities, Internet, Food, Beverages &amp; Tobacco, Retail, and Commercial Services. As in other markets, cyclicals leading the recovery, and, as a result, driving Japan's indices to new multi-decade highs.
FORWARD VALUATIONS - While the trailing Market Composite PER remain above 30 times,  a ¥7.6 trillion increase in forecast Net Income from the low point if 2020, has reduced the forward multiple to 28.2 times. By the end of May, most March year-end companies will have made forecasts for the year to March 2022 - a decline to below 25 times is likely, assuming Total Market Value is at current levels.
ALL-TIME US$ HIGH &lt;10% AWAY - While much is being written about the new thirty-year high for the TOPIX index, many will have missed the proximity of TOPIX in US dollars terms to a new all-time high, which would occur with a combined 9.5% increase in the equity market and the Yen. A 4.3% rise in TOPIX and a USDJPY rate of 100 is all that is required and would be a welcome feather in the cap of the recently beleaguered PM Suga's cap. 
RSI &gt;80 - Tempering the current bullishness are the RSI of over 80 and a Toraku index close to 120. Both suggest near-term caution is warranted.
 • RESULTS &amp; REVISIONS SUMMARY - 12th FEBRUARY •Of Friday's 723 results announcements, 64% scored positively for earnings momentum despite trailing revenues falling by 3% on average and a 3.9 point decline in operating margins. 17% of companies were in the red for the quarter.  63% of the 360 annual forecasts/revision announcements scored positively, and the average Forecast/Revision score was +10.3 points.• BEST &amp; WORST •
The 'best' larger-cap announcements came from Yamaha Motor (7272 JP),  Japan Post Bank (7182 JP), and Toppan Printing (7911 JP); the 'worst' were from Otsuka Holdings (4578 JP), Sumitomo Dainippon Pharma (4506 JP), and Lion (4912 JP).  Pola Orbis (4927 JP) and Asahi Group (2502 JP) take the prizes for optimism.  For more, see the DETAIL section below.



🇯🇵 JAPAN • Market & Results & Revisions Update 02/12 • Yamaha Motor, J Post Bank, Otsuka & Lion

<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/173/867/original/2020-11-25_11-14-58.png?1606270511" class="editor-image img-responsive" data-smartkarma-image-id="173867"></figure></section><div class="content-caption">Source for all charts &amp; tables: Japan Analytics</div><p><strong>FOUR QUADRANTS</strong> - By combining our two scoring methodologies - the Relative Price Score (RPS) and the Results &amp; Revision Score (RRS), we can assign companies into four quadrants:-</p><ul>
<li>
<strong>CONTRARIAN BUYS</strong> - Companies with<strong> low</strong> Results &amp; Revision and Relative Price Scores</li>
<li>
<strong>CONTRARIAN SELLS</strong> - Companies with <strong>high</strong> Results &amp; Revision and Relative Price Scores</li>
<li>
<strong>TURNAROUNDS</strong> - Companies with<strong> high</strong> Results &amp; Revision Scores &amp; <strong>low</strong> Relative Price Scores</li>
<li>
<strong>EX-GROWTH</strong> - Companies with <strong>low</strong> Results &amp; Revision Scores &amp; <strong>high</strong> Relative Price Scores</li>
</ul><p>In the two <strong>Contrarian</strong> quadrants, companies can remain outliers for extended periods, such as <a href="https://www.smartkarma.com/entities/jfe-holdings-inc" target="_blank" data-smartkarma-citation="entities:210:1" rel="noopener">JFE (5411 JP)</a>  in Buys, <a href="https://www.smartkarma.com/entities/lasertec-corp" target="_blank" data-smartkarma-citation="entities:4126:1" rel="noopener">Lasertec (6920 JP)</a> in Sells. The other quadrants see much more 'turnover' and van can offer profitable trading opportunities such as <a href="https://www.smartkarma.com/entities/lixil-group-corp" target="_blank" data-smartkarma-citation="entities:454:1" rel="noopener">Lixil(5938 JP)</a> in <strong>Turnarounds,</strong> and <a href="https://www.smartkarma.com/entities/ariake-japan-co-ltd" target="_blank" data-smartkarma-citation="entities:4908:1" rel="noopener">Ariake Japan (2815 JP)</a> in the <strong>Ex-Growth</strong> quadrant.</p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/173/896/original/2020-11-25_12-25-57.png?1606274769" class="editor-image img-responsive" data-smartkarma-image-id="173896"></figure><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/173/903/original/2020-11-25_12-56-49.png?1606276623" class="editor-image img-responsive" data-smartkarma-image-id="173903"></figure></section><p><strong><a href="https://www.dropbox.com/s/7b61jl02dh0pzno/2020-11-25_12-43-55.png?dl=0" target="_blank" rel="noopener">CONTRARIAN BUYS</a> -</strong> In the <strong>DETAIL</strong> below, we shall review the current 'crop' of Contrarian Buys for potential opportunities. Subsequent Insights in this mini-series will look into the other three quadrants before concluding with one '<em><strong>2021 High Conviction</strong></em>' recommendation. </p></section>

Source for all charts &amp; tables: Japan AnalyticsFOUR QUADRANTS - By combining our two scoring methodologies - the Relative Price Score (RPS) and the Results &amp; Revision Score (RRS), we can assign companies into four quadrants:-

CONTRARIAN BUYS - Companies with low Results &amp; Revision and Relative Price Scores

CONTRARIAN SELLS - Companies with high Results &amp; Revision and Relative Price Scores

TURNAROUNDS - Companies with high Results &amp; Revision Scores &amp; low Relative Price Scores

EX-GROWTH - Companies with low Results &amp; Revision Scores &amp; high Relative Price Scores
In the two Contrarian quadrants, companies can remain outliers for extended periods, such as JFE (5411 JP)  in Buys, Lasertec (6920 JP) in Sells. The other quadrants see much more 'turnover' and van can offer profitable trading opportunities such as Lixil(5938 JP) in Turnarounds, and Ariake Japan (2815 JP) in the Ex-Growth quadrant.CONTRARIAN BUYS - In the DETAIL below, we shall review the current 'crop' of Contrarian Buys for potential opportunities. Subsequent Insights in this mini-series will look into the other three quadrants before concluding with one '2021 High Conviction' recommendation. 

🇯🇵 JAPAN • Four Quadrants - Contrarian Buys

<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/172/203/original/2020-11-17_12-24-48.png?1605583510" class="editor-image img-responsive" data-smartkarma-image-id="172203"></figure><div class="content-caption">Source for all charts &amp; tables: Japan Analytics</div>
<p><strong>BRIGHTER, LATER</strong> - Forecast Aggregate Net Income for the universe of Japanese listed companies ended the quarter, higher than three months ago by ¥1.2 trillion. As a result, the market's forward multiple is unchanged at 31 times, despite a 7% rise in market capitalisation. Although this 'season' was the best in two years in terms of forecast profits, trailing earnings are still falling, by almost ¥3 trillion in the case of operating income. Much of the market optimism rests on a Japan experiencing a mild COVID winter and the impact of the incoming Biden administration's policy pronouncements on the US dollar. </p>
<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/172/219/original/2020-11-17_13-33-54.png?1605587647" class="editor-image img-responsive" data-smartkarma-image-id="172219"></figure></section><p><strong>5.2% TTM OPERATING MARGINS</strong> - Aggregate Operating Income has declined by a third year-on-year on a 10% decline in revenues. The good news is that the pace of decline is slowing. Nevertheless, all of the Abe-era gains in earnings have now been unwound.</p>
<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/172/230/original/2020-11-17_13-47-49.png?1605588488" class="editor-image img-responsive" data-smartkarma-image-id="172230"></figure><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/172/394/original/2020-11-18_07-24-55.png?1605651921" class="editor-image img-responsive" data-smartkarma-image-id="172394"></figure></section><p><strong>4.8% FORECAST OPERATING MARGINS</strong> - Operating margins are forecast to contract further over the next five months to 4.8%. Forecast revenues and operating income are both 3% lower than three months ago, the slowest rate of attrition in three quarters. The current market euphoria, which has taken total capitalisation to within 3% of the pre-COVID high is implying that the next 'print' of this data series, will be positive.    </p></section><section class="figure"></section><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/172/256/original/2020-11-17_14-22-29.png?1605590564" class="editor-image img-responsive" data-smartkarma-image-id="172256"></figure></section><p><strong>POSITIVE MOMENTUM</strong> - The sharp recovery in earnings momentum, which the market has been discounting is now materialising. Our Forecast/Revision Score has returned to March levels while the trailing Results Score has bottomed out well above the low of 2009. </p>
<section class="figure"><section class="figure"></section><div class="content-highlight"><p>In the <strong>DETAIL</strong> section below, we shall review the actual results and initial and revised forecasts by Sector and highlight the best and worst-performing companies by one-quarter revenue and margin changes. </p></div></section></section>

Source for all charts &amp; tables: Japan Analytics
BRIGHTER, LATER - Forecast Aggregate Net Income for the universe of Japanese listed companies ended the quarter, higher than three months ago by ¥1.2 trillion. As a result, the market's forward multiple is unchanged at 31 times, despite a 7% rise in market capitalisation. Although this 'season' was the best in two years in terms of forecast profits, trailing earnings are still falling, by almost ¥3 trillion in the case of operating income. Much of the market optimism rests on a Japan experiencing a mild COVID winter and the impact of the incoming Biden administration's policy pronouncements on the US dollar. 
5.2% TTM OPERATING MARGINS - Aggregate Operating Income has declined by a third year-on-year on a 10% decline in revenues. The good news is that the pace of decline is slowing. Nevertheless, all of the Abe-era gains in earnings have now been unwound.
4.8% FORECAST OPERATING MARGINS - Operating margins are forecast to contract further over the next five months to 4.8%. Forecast revenues and operating income are both 3% lower than three months ago, the slowest rate of attrition in three quarters. The current market euphoria, which has taken total capitalisation to within 3% of the pre-COVID high is implying that the next 'print' of this data series, will be positive.    POSITIVE MOMENTUM - The sharp recovery in earnings momentum, which the market has been discounting is now materialising. Our Forecast/Revision Score has returned to March levels while the trailing Results Score has bottomed out well above the low of 2009. 
In the DETAIL section below, we shall review the actual results and initial and revised forecasts by Sector and highlight the best and worst-performing companies by one-quarter revenue and margin changes. 

🇯🇵 JAPAN • IT’S A WRAP - Autumn 2020 Results & Revisions Review

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/156/586/original/2020-09-02_15-03-28.png?1599026640" class="editor-image img-responsive" data-smartkarma-image-id="156586"></figure>
<div class="content-caption">Source for all charts: Japan Analytics</div>
<p><strong>NEV IN JAPAN</strong> - Japan has a reputation for being the world's leading market for finding listed companies with negative Enterprise Value (NEV). Based on a sample of 842,133 traded months for the 3,826 currently-listed non-financial companies in our universe since 1993, NEV-traded months represent 8%. One thousand and eleven companies have spent at least one month with a negative EV and the average NEV 'period' is just over two years.  The number of NEV companies has varied over the last thirty years, from only one in 1994 (Sanyu Construction 1841 JP) to a peak of 437 in 2009 - 15.4% of the universe. In the last two years, the percentage has doubled to 10% or 366 companies, most of which are small-cap.</p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/156/590/original/2020-09-02_15-13-33.png?1599027223" class="editor-image img-responsive" data-smartkarma-image-id="156590"></figure>
<p><strong>50 BPS</strong> -Accordingly, the aggregate (inverted) value of NEV stocks is ¥2.5 trillion or just 50 basis points of the aggregate of the universe. Nevertheless, the current value is at the upper end of the thirty-year range. We have excluded four non-financial companies - Z Holdings, Rakuten, Japan Post, and Sony - as they have financial subsidiaries on their balance sheets.</p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/156/595/original/2020-09-02_15-36-40.png?1599028611" class="editor-image img-responsive" data-smartkarma-image-id="156595"></figure>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/156/866/original/2020-09-03_16-43-25.png?1599119017" class="editor-image img-responsive" data-smartkarma-image-id="156866"></figure>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/156/596/original/2020-09-02_15-37-56.png?1599028687" class="editor-image img-responsive" data-smartkarma-image-id="156596"></figure>
<p><strong>NEV 'BUYS'</strong> - Brief periods, and occasionally extended, when higher-quality companies dip into NEV are often good long-term buying opportunities as shown above with <a href="https://www.smartkarma.com/entities/temp-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:1428:1" rel="noopener">Persol (2181 JP)</a>, <a href="https://www.smartkarma.com/entities/toei-animation-co-ltd" target="_blank" data-smartkarma-citation="entities:18641:1" rel="noopener">Toei Animation (4816 JP)</a>  and <a href="https://www.smartkarma.com/entities/hakuhodo-dy-holdings-inc" target="_blank" data-smartkarma-citation="entities:8736:1" rel="noopener">Hakuhodo DY (2433 JP)</a>. </p>
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<p><strong>NEV 'TRAPS'</strong> - Conversely, NEV can persist for years, 'trapping' both value investors and activists, particularly where management remain 'cloth-eared' such as <a href="https://www.smartkarma.com/entities/tokyo-broadcasting-system" target="_blank" data-smartkarma-citation="entities:12981:1" rel="noopener">Tokyo Broadcasting System (9401 JP)</a> and <a href="https://www.smartkarma.com/entities/toppan-printing-co-ltd" target="_blank" data-smartkarma-citation="entities:11875:1" rel="noopener">Toppan Printing (7911 JP).</a></p>
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<p>In the <strong>DETAIL</strong> section below, we will review the current large-cap NEV companies, as well the most persistent and the largest peak to trough NEV ranges and make some specific stock recommendations.</p>
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Source for all charts: Japan Analytics
NEV IN JAPAN - Japan has a reputation for being the world's leading market for finding listed companies with negative Enterprise Value (NEV). Based on a sample of 842,133 traded months for the 3,826 currently-listed non-financial companies in our universe since 1993, NEV-traded months represent 8%. One thousand and eleven companies have spent at least one month with a negative EV and the average NEV 'period' is just over two years.  The number of NEV companies has varied over the last thirty years, from only one in 1994 (Sanyu Construction 1841 JP) to a peak of 437 in 2009 - 15.4% of the universe. In the last two years, the percentage has doubled to 10% or 366 companies, most of which are small-cap.

50 BPS -Accordingly, the aggregate (inverted) value of NEV stocks is ¥2.5 trillion or just 50 basis points of the aggregate of the universe. Nevertheless, the current value is at the upper end of the thirty-year range. We have excluded four non-financial companies - Z Holdings, Rakuten, Japan Post, and Sony - as they have financial subsidiaries on their balance sheets.



NEV 'BUYS' - Brief periods, and occasionally extended, when higher-quality companies dip into NEV are often good long-term buying opportunities as shown above with Persol (2181 JP), Toei Animation (4816 JP)  and Hakuhodo DY (2433 JP). 


NEV 'TRAPS' - Conversely, NEV can persist for years, 'trapping' both value investors and activists, particularly where management remain 'cloth-eared' such as Tokyo Broadcasting System (9401 JP) and Toppan Printing (7911 JP).

In the DETAIL section below, we will review the current large-cap NEV companies, as well the most persistent and the largest peak to trough NEV ranges and make some specific stock recommendations.


🇯🇵 JAPAN • Looking for Value in Negative Enterprise Value

Japan

Toppan Printing Co., Ltd. is a printing company that provides commercial and publication printing services. The Company also prints securities paper, packaging products, and electronic related products such as photomasks and colorfilters. Toppan Printing also produces inks and operates a text book publication business.

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Toppan Printing (7911 JP)

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🇯🇵 JAPAN • Looking for Value in Negative Enterprise Value

NEV IN JAPAN - Japan has a reputation for being the world's leading market for finding listed companies with negative Enterprise Value (NEV)....

Campbell Gunn

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