Is Japan's Surge Bringing Top Profits for Manufacturers?
Between a falling yen and soaring economy, Japan's leading manufacturing stocks are poised to soar
Is Japan's Surge Bringing Top Profits for Manufacturers?
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No goal too big for Shinzo AbeAbe outlined a number of targets for his stimulus and regulatory reforms to achieve in a speech on Friday, and the prime minister's thinking big. He hopes for transportation and power-generation exports to triple in coming years, growing total infrastructure exports to $291 billion, or 30 trillion yen, by 2020. Along with doubling tourism and farm exports, Abe's aiming for Japan to recover all its economic losses inflicted by the 2008 recession.
So far, so good under the new prime minister's plan. Japan's GDP grew at a 3.5% annualized rate in the first quarter, surpassing the U.S.'s economic growth by a full percentage point, and easily topping economist projections of 2.8% growth. It's a big improvement on last year, when Japan was still locked in contraction territory. Abe's 2% inflation goals still linger far off in the distance, but the yen recently surpassed the 100 yen per dollar mark, an important milestone, as Japan's currency pulls back from years of strength.
The weak yen is good for exporters, and Japan's leading manufacturers got a welcome surprise this week. Core machinery orders increased by more than 14% in March, and core manufacturing orders are expected to break a contraction streak in the second quarter by posting a 0.8% gain. Japanese manufacturer Komatsu (NASDAQOTH: KMTUY ) has soared on the back of the economy's surge, and the industrial giant's stock has jumped more than 13% over the past month.
Komatsu's the second-largest industrial and mining equipment manufacturer in the world after Caterpillar (NYSE: CAT ) , and the weak yen should help Komatsu maintain its market-share lead over its American rival in China. Caterpillar hopes to counter by investing more in China, including launching a new manufacturing center, but investors should love Komatsu's momentum and position, even as the industrial sector continues to remain stuck under poor conditions. The firm predicts a 46% net profit increase this year to be boosted by the falling yen and increased Chinese demand, and for a down period for the industry, that's a gain investors should celebrate.
Farm machinery and tractor manufacturer Kubota (NYSE: KUB ) also got a boost from Abe's speech, and shares are up a whopping 23% over the past month after gaining 5.2% on Friday alone. An increase in farm exports, and Japan's agricultural industry would be a boon for Kubota, particularly as the company aims to compete among the bigger players in its industry, such as Deere. Seventy percent of Kubota's sales last year came from farm and industrial equipment, and the weak yen should also help Kubota's international competitiveness.
Can Caterpillar keep up with Japan's rise?
Caterpillar might not have such a rosy outlook as Komatsu and
Kubota, but this is one stock that's backed up by a solid foundation.
Caterpillar is the market share leader in an industry in which size
matters, and its quality products, extensive service network, and
unparalleled brand strength combine to give it solid competitive
advantages. Read all about Caterpillar's strengths and weaknesses in The
Motley Fool's brand new report. Just click here to access it now.
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