Conditions for Targeting Undervalued High Dividend Yield Stocks with NISA Growth Investment Limits
What Stocks Are Hideki Wajima Currently Paying Attention to as Undervalued and Neglected?
In early July, the Nikkei Stock Average updated its highest closing price in about four months. Moreover, this time, the Tokyo Stock Price Index (TOPIX) updated its all-time high for the first time in about 34 and a half years. What changes are occurring in Japan’s stock market, and which stocks are promising for the future? We asked economic journalist Hideki Wajima.
◇ Hideki Wajima Economic Journalist【PROFILE】Wajima Hideki
After working as a reporter at Nippon Kango Kakumaru Securities (now Mizuho Securities) and Stock Newspaper Company (now Wealth Advisor Inc.), he joined Radio NIKKEI in 2000. He served as Tokyo Stock Exchange reporter club cap and commentary committee member. In June 2020, he became independent. He currently regularly appears on Radio NIKKEI’s ‘Market Press,’ Tokyo MX TV’s ‘Tokyo Market Wide,’ and Nikkei CNBC’s ‘Morning Express,’ among others. He is a council member of the Japan Technical Analysts Association.
Reasons Why the Update of TOPIX’s All-Time High Should Be Taken Seriously
TOPIX (Topics) has updated its all-time high from December 1989. This is a significant development.
The Nikkei Average is an average stock price composed of 225 stocks from the Prime Market of the Tokyo Stock Exchange (TSE) and is easily influenced by certain stocks. In fact, the update of the highest price in February this year was achieved with the help of certain high-priced stocks and semiconductor-related stocks.
In contrast, TOPIX is composed of the market capitalization of about 2,100 stocks listed on the TSE and represents the overall movement of Japan’s stock market. In other words, with the update of TOPIX’s all-time high, it can be said that Japan has completed the settlement of the ‘Lost 30 Years’ following the collapse of the bubble.
Economically, Japan is in a transitional period from 30 years of deflation to a proper inflation where prices are naturally rising. Corporate profits are overall at record levels, and a positive cycle of wage increases achieved through spring labor negotiations is occurring. Japan’s economy has finally normalized and has begun moving towards new growth.
Are Current Stock Prices a Bubble? The Problem with Media Reports on the Bank of Japan’s Missteps
When stock indices update their all-time highs, there is always the question of ‘Are current stock prices a bubble?’ However, there is no need to worry about this at all. As mentioned earlier, corporate earnings are strong, and stock prices are well-supported. Japanese stock prices have only just reached the starting line and are far from being a bubble. While Japanese stock prices have merely returned to their 1989 levels, during that time, U.S. stocks have increased approximately 16 times for the S&P 500 and about 27 times for the NY Dow.
Additionally, the Bank of Japan’s monetary tightening, which is often raised as a concern, is expected to end up being unfounded. The persistent yen depreciation and rising prices, attributed to the Bank of Japan’s monetary policy, have led to frequent criticism of the central bank. As a result, there is a view that the Bank of Japan might implement rate hikes significantly earlier than the financial markets anticipate.
Indeed, media reports may give the impression that Bank of Japan Governor Kazuo Ueda is somewhat wavering, as his remarks seem to be influenced by the yen’s weakness. However, this is a problem with the reporting itself. A close examination of his press conferences and speeches shows no signs of inconsistency from Governor Ueda. He is known for being the sole dissenting vote against the ‘Zero Interest Rate Policy Removal’ in August 2000 while serving as a member of the Bank of Japan’s Policy Board. It is unlikely that hasty monetary tightening will revert the Japanese economy back into deflation.
Target Undervalued Stocks Not Yet Reflecting Japan’s ‘Escape from Deflation’
So, what kinds of stocks should be selected for equity investment at present? Although it is said that ‘this is not a bubble,’ it is difficult to handle stocks that have already risen significantly. Therefore, I would like to introduce stocks that are considered undervalued compared to the actual performance of the companies. These are the so-called ‘undervalued stocks.’
In the stock market, ‘undervalued stocks’ refer to stocks that are left at a low price compared to the company’s value, which is calculated from profits generated by the company and its assets. These are often referred to as ‘value stocks.’ Even among Japan’s leading large companies, there are still many stocks that have not yet incorporated the significant structural change of escaping deflation in the Japanese economy into their stock prices.
[Key Points of ‘Undervalued High Dividend Yield Stocks’ Currently Focused on by Hideki Wajima]
- Strong, high-quality companies with solid management foundations, but with high dividend yields during stock price adjustment phases
- Concrete plans or shareholder returns aimed at achieving ‘PBR of 1’
- High likelihood of upward revisions in performance due to yen depreciation corrections
This time, we will pick three stocks from that list.
■ [Real Names Revealed] The real names of the three ‘target’ stocks identified by Hideki Wajima, along with the reasons for their selection, the latest information on each company, and stock price data can be read in the paid version of [FRIDAY Subscription].
Interview and text： Kenji Matsuoka
After working as a money writer, financial planner, and market analyst for a securities company, Wajima became independent in 1996. He writes articles on finance and asset management mainly for business and economic magazines. Author of "A Textbook for the First Year of Robo-Advisor Investing" and "A Book You Can Understand with Rich Illustrations! Cashless Payments for the Absolute Benefit of Cashless Payments".
