Pro Research of the Week: Warren Buffett's 5 Big Japan Bets

In 2020, Warren Buffett , who usually confines himself to the US markets, surprised everyone by announcing a massive $6 billion bet on the following five Japanese trading houses:

• Itochu Corp (OTC:ITOCY)
• Mitsui & Company (OTC:MITSY)
• Mitsubishi Corp. (OTC:MSBHF)
• Marubeni Corp (OTC:MARUY)
• Sumitomo Corp (OTC:SSUMY)

Less than three years later, these five stocks have gained an average of around 180% and now account for $17 billion in Berkshire Hathaway 's (NYSE:BRKa) portfolio.

Warren Buffett's investments primarily focus on Japan's largest conglomerates known as sogo-shosha or general trading companies. Historically, these companies played a vital role in importing a wide range of products, including energy, minerals, and foodstuffs, to Japan—an archipelago lacking significant natural resources. Additionally, they were responsible for exporting finished goods produced in Japan.

However, the landscape has transformed considerably, and these Japanese firms now generate most of their revenue through non-commercial activities. They have transitioned from mere import-export operations to comprehensive business management, diversifying their holdings across various sectors. Their investments span industries such as logistics, real estate, frozen foods, aerospace, electric vehicles, and renewable energies.

In essence, these companies bear a resemblance to Berkshire Hathaway, a point recently emphasized by Warren Buffett himself.

The Oracle of Omaha told CNBC during his visit to Japan in April,

"I just thought these were great companies. They were companies whose businesses I generally understood. It's kind of the same with Berkshire, which has a lot of different interests,"

In May, Buffett further explained the reasons for this investment at Berkshire's annual meeting, noting that these companies were "ridiculously" cheap, well-established in familiar sectors, focused on the long term, and large enough to have a significant impact on Berkshire's earnings.

In addition to discussing the qualities of these stocks using the InvestingPro fundamental analysis tool later in this article, it is worth noting that Japanese equities have been performing exceptionally well recently.

Indeed, on Thursday, the Nikkei, Japan's main stock market index, reached a new all-time high at 33,805 points. This came after five consecutive positive sessions in which the index surged 6.8%.

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This solid rise comes on the back of concrete macroeconomic factors that make investing in Japanese equities worthwhile, with encouraging signs that the country is finally leaving the path of deflation, which, in its case, is a good thing.

Indeed, analysts were surprised in early June when the Japanese didn't bat an eyelid at a wave of price rises on thousands of consumer goods.

This growing acceptance of inflation is one of the factors, along with signs of improved corporate governance and Warren Buffett's investments, that have helped the Japanese stock market set recent record highs, according to analysts.

Indeed, there is a belief among many that inflation could have a positive impact on corporate margins, serving as a crucial factor that could help the world's third-largest economy break free from a period of low or zero growth that has persisted for several decades.

Given that Warren Buffett's investments in Japan have more than paid off, and that he remains convinced of the merits of the position, and given the macroeconomic skies that seem to be clearing in Japan, it makes sense to take a closer look at the stocks the Oracle of Omaha has set his sights on.

That's why we've compiled an InvestingPro Advanced Watchlist.

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As you can see below, these stocks don't stand out for their upside potential, at least as far as analysts' forecasts are concerned.