Gavekal Capital: Cheap Stock Ideas In Japan

Tuesday, November 4, 2014

Cheap Stock Ideas In Japan

Our Gavekal Knowledge Leaders Developed World Index (KNLG, see here for more information) is an equal weighted index of the developed world's most innovate companies. Relative to the MSCI World Index, our index has a couple significant country differences: 1) we are fairly underweight companies in the US and 2) we are very overweight companies in Japan. In the table below, we identify the weighting by country in the KNLG index, then the weights in the MSCI World Index and lastly the difference.

Country Allocation of Gavekal Knowledge Leaders Developed World Index (KNLG)

Because of our structural emphasis on Japan, we spend a good portion of time sifting through Japanese stock ideas. In Japan there is no shortage of statistically cheap companies. In the tables below we show Japanese constituents of our KNLG index that are under 5x intangible adjusted cash flow. We deduct from current period income all the intangible investments that companies make (like research and development, employee training or advertising) in order to arrive at our measure of intangible adjusted cash flow.

KNLG Japanese Consumer Discretionary

KNLG Japanese Consumer Staples

KNLG Japanese Health Care

KNLG Japanese Industrials

KNLG Japanese Technology

KNLG Japanese Materials

About Gavekal Capital

Gavekal Capital is a US registered investment advisory firm that manages the Gavekal Knowledge Leaders Strategy. Knowledge Leaders are a group of the world’s leading innovators with deep reservoirs of intangible capital. These companies often possess competitive advantages such as strong brand, proprietary knowledge or a unique distribution mechanism. Knowledge Leaders are largely service-based and advanced manufacturing businesses, often operating globally. Gavekal Capital seeks to identify the world’s leading knowledge companies through a proprietary process that analyzes corporate knowledge investments.
We offer the Gavekal Knowledge Leaders Strategy in multiple products for global investors. For more information about our product offerings please visit http://www.gavekalcapital.com.
Blogs are posted by our investment team. Find out more about us at here. Read more about our strategy at www.gavekalcapital.com.

Disclosure

The information presented here is for informational purposes only, and this document is not to be construed as an offer to sell, or the solicitation of an offer to buy, securities. Some investments are not suitable for all investors, and there can be no assurance that any investment strategy will be successful. An investor cannot invest directly in an index. Hyperlinks may be included in this message that provide direct access to other internet resources, including web sites. While we believe these links are to reliable sources, Gavekal has no control over the accuracy or content of information contained on these sites. Although we make every effort to ensure such links are accurate, up to date and relevant, we have no control over pages maintained by external providers. The views expressed by these external providers on their own web pages or on external sites they link to are not necessarily those of Gavekal.
The information listed on this blog is for example purposes only and should not be construed as the investment Advisor's opinion or investment outlook. As of the most recent quarter end, the named companies may have been held by the investment Advisor. Please review the most recent disclosures. For full information including additional policies and full disclosures on the Advisor, please visit our website gavekalcapital.com.