The tsunami in Japan was devastating, with the thousands of lost loves and horrendous damage to buildings and infrastructure. And, while the lives can never be replaced, there is some hope in the country, as the devastation will drive massive infrastructure spending going forward.
Japanese stocks plummeted over 10% on March 16 on the concerns towards the nuclear leak at one of the damaged power stations and expectations that the damage will hurt the country’s already stagnant economic growth.
The events in Japan will likely impact sales of not only Japanese companies, but also other global multinationals. High-end jewelry operator Tiffany & Co. (NYSE/TIF) cut is first-quarter guidance due to the company’s heavy exposure in Japan where it has 56 stores, or about 24% of its total. I expect other major U.S. companies to be impacted by Japan as well.
The benchmark Nikkei 225 has been rallying since the sell-off, which I thought was a fairly decent buying opportunity for major Japanese stocks that fell in the aftermath of the tsunami. Several of the key Japanese banks, including Mitsubishi UFJ Financial Group, Inc. (NYSE/MTU) and Sumitomo Mitsui Financial Group, Inc. (NYSE/SMFG), are interesting bank plays.
Famed billionaire and investment guru Warren Buffett, who is on a tour in Asia, said that the weakness in Japanese stocks provide a buying opportunity. When Buffett gives investment advice, you’ve got to listen.
My economic analysis is that there will be a significant need to rebuild the damaged areas. There will be new buildings, roads, and various infrastructures in the impacted regions. This means increased demand for concrete, steel, and other building materials. An infrastructure build-up also means that workers will be needed to work on the projects.
Again, not to reduce the significance of the lives lost in Japan, the infrastructure build-up actually comes at a time when the Japanese economy is stagnant and could really provide a boost for the economy in this area. Of course, other sectors will be impacted, but the infrastructure spending will likely give the Japanese economy a much-needed boost.
Other than the banks, you want to look at infrastructure stocks, not only in Japan, but also global companies operating in the United States, such as Jacobs Engineering Group Inc. (NYSE/JEC) and Fluor Corporation (NYSE/FLR).
You also want to look at companies that provide the building materials, like concrete and steel.