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Big Short’s Michael Burry Reveals His Picks of Undervalued Japanese Companies

Big Short’s Michael Burry Reveals His Picks of Undervalued Japanese Companies

(Bloomberg) -- Shares of small- and medium-sized Japanese companies targeted by Michael Burry climbed on Thursday after the investor from “The Big Short” disclosed his holdings in an email interview with Bloomberg News.

The investor, whose bet against the subprime bubble a decade ago was spotlighted in “The Big Short: Inside the Doomsday Machine” by Michael Lewis and the 2015 movie, is now “100% focused on stock-picking,” he said. Burry, who exited his investments in water and farmland, followed up on his recent disclosure of major stakes in smaller value stocks and the U.S. and South Korea by discussing specific investments in Japan.

Big Short’s Michael Burry Reveals His Picks of Undervalued Japanese Companies

Burry, whose Cupertino, California-based Scion Asset Management oversees about $343 million, said he’s taken stakes in more than half a dozen Japanese companies and is encouraging management to unlock value. Businesses in Japan held 506.4 trillion yen ($4.8 trillion) in cash as of their latest filings, the highest on record and triple the level since March 2013, according to data compiled by Bloomberg.

“In many cases, the company might have significant cash or stock holdings that make up a lot of the stock price,” Burry wrote in an emailed response to questions. “I want to see evidence that the company is investing to grow the business, buying back stock, paying dividends, or making accretive acquisitions.”

Burry has stakes in these Japanese companies:

  • Tazmo Co. rose as much as 11% on Thursday. The manufacturer of chip-making equipment is 5.1% owned by Scion Asset Management, according to data compiled by Bloomberg. The company “needs to invest in its business to develop the potential of the markets it serves,” Burry said.
  • Yotai Refractories Co. gained as much as 7.7%. The maker of bricks and materials used in electric furnaces should buy back stock, according to Burry. The company had 4.4 billion yen in cash and equivalents at the end of March. It has a market value of 13.4 billion yen, and Scion has a 5% stake.
  • Sansei Technologies Inc. climbed as much as 7.7%. The manufacturer of elevators, moving stage platforms and theme-park amusement rides “should pay down debt to improve cash flow and to put it in position for another acquisition,” Burry said.
  • Tosei Corp. gained 4.9%. Burry sees the company as an “opportunistic player in urban real estate.” He said he likes the management team, considers the stock to be cheap at about 7 times earnings and said they have been opportunistic with share buybacks. “It is one of my larger positions because they are executing in every facet of the business, including capital allocation,” the investor said.
  • Kanamoto Co., which leases construction tools and machinery, rose 2.2%. “They run a tight ship from a credit perspective, and maintain their equipment for high resale at auction,” Burry said. “They also look to acquire both equipment and whole companies opportunistically, and there is a lot of room for consolidation in Japan.”
  • Altech Corp., which provides for-hire mechanics and engineers for various industries, added 3.9%. The company “will benefit from recent immigration reforms as it expands into agriculture and patient care areas,” Burry said. The company has more than doubled earnings per share since 2014 on the back of a 50% jump in revenue, the investor said.
  • Nippon Pillar Packing Co. makes mechanical seals, gaskets and packing materials. The stock gained 4%. Burry sees the stock rebounding “with a high beta to the sector as the inventory of tech components is finished off and growth resumes.”
  • Burry pointed out that Murakami Corp. has cash of about 28 billion yen and stock holdings of about 2.5 billion yen, with a market value of 29.3 billion yen. The stock rose 1.7% on Thursday. The maker of automotive mirrors is forecasting growth, buying back some stock and paying a dividend, but that’s not enough, he said. Shares of the company are little changed this year following a 35% decline in 2018. “Situations like that call for more dramatic action, and I’d like to see large tender offers for 1/3 or more of the shares, large special dividends,” Burry said. “I just have not seen that, and there is a long way to go.”

--With assistance from Heejin Kim.

To contact the reporters on this story: Teo Chian Wei in Tokyo at cwteo@bloomberg.net;Reed Stevenson in Tokyo at rstevenson15@bloomberg.net

To contact the editors responsible for this story: Emma O'Brien at eobrien6@bloomberg.net, ;Lianting Tu at ltu4@bloomberg.net, Teo Chian Wei, Tom Redmond

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