Itochu Corp (TYO:8001) and Sumitomo Mitsui Financial Grp, Inc. (ADR) (SMFG) are two Japanese trading houses exposed to different businesses that are trading at attractive valuations, earning double-digit profitability and paying dividends in the 3% range, says Chad Deakins, Chief Investment Officer for Certium Asset Management.
“Itochu and Sumitomo are two of our top 10 holdings, and these stocks are related to the global trade and pricing of raw materials, iron ore and coking coal, and other resources. These stocks are called trading houses, and there are about five or six of them in Japan,” Deakins said. “They are big conglomerates, and they are trading at very attractive valuations.”
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Sumitomo is engaged in financial services-related businesses, while Itochu focuses on various segments ranging from textiles to energy. Both companies are trading at a low five times cash flow while earning solid profits and paying dividends, and Deakins expects the two stocks to rerate through the next business cycle.
“They earn double-digit profitability and pay dividends in the high 3% range. We think as we move along through the business cycle, these stocks can rerate dramatically up to another 25% or 35%,” Deakins said.
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