Japanese stock markets have been marked by significant volatility recently, caused by the re-appreciating yen and changing central bank policies. Despite these fluctuations, the Nikkei 225 Index and the TOPIX Index managed to recover much of their losses by the end of the week. In this environment, identifying undervalued stocks becomes crucial for investors looking to capitalize on potential market recoveries. The following three stocks stand out as top value picks on the Japanese stock market for August 2024.

The 10 most undervalued stocks in Japan based on cash flows

Click here to see the full list of 74 stocks from our Undervalued Japanese Stocks Based on Cash Flows screener.

Let’s uncover some gems from our specialized screener.

Overview: Kotobuki Spirits Co., Ltd. produces and sells candies in Japan and has a market capitalization of 259.54 billion yen.

Operations: Kotobuki Spirits generates its revenue primarily from its Shukrei segment at ¥27.03 billion, Casey Shii at ¥18.88 billion, Kotobuki Confectionery/Tajima Kotobuki at ¥13.19 billion, distribution subsidiaries at ¥7.06 billion, and Kujukushima at ¥6.56 billion.

Estimated discount to fair value: 29.6%

Kotobuki Spirits is trading at 1,667.5 yen, well below its estimated fair value of 2,368.46 yen. Analysts agree that the stock price could rise 65.3%. Despite a recent dividend cut to 28 yen per share, earnings growth of 14% and revenue growth of 11.1% per year are expected, outpacing the broader Japanese market growth rates of 8.7% and 4.3%, respectively. The company’s return on equity is expected to peak at 31.9% in three years.

Overview: Sansan, Inc. is engaged in the planning, development and sale of cloud-based solutions in Japan and has a market capitalization of 254.61 billion yen.

Operations: Sansan’s revenue segments include 29.95 billion yen from the Sansan/Bill One Business and 3.55 billion yen from the Eight Business.

Estimated discount to fair value: 14.9%

Sansan, Inc. trades at 2024 yen, slightly below its estimated fair value of 2377.83 yen. The company recently announced a 300 million yen share buyback program, which could potentially increase value for shareholders. Earnings are expected to grow significantly at 30.82% per year over the next three years, outpacing the broader Japanese market’s growth rate of 8.7%. Despite a very volatile share price of late, Sansan has posted profits this year and has strong future growth prospects based on cash flows.

Overview: Aozora Bank, Ltd., together with its subsidiaries, offers a range of banking products and services both in Japan and internationally and has a market capitalization of 327.13 billion yen.

Operations: Aozora Bank’s revenue segments include the Corporate Sales Group (16.11 billion yen), the Customer Relations Group (8.35 billion yen), the Structured Finance Group (40.97 billion yen) and the International Business Group (18.48 billion yen).

Estimated discount to fair value: 13.8%

Aozora Bank trades at 2365 yen and is considered undervalued with an estimated fair value of 2743.73 yen. The bank’s revenue growth forecast of 9.6% per year beats the Japanese market average of 4.3%, and earnings are expected to grow 74.66% annually over the next three years. However, Aozora has a high percentage of bad loans (3.1%) and recent share dilution could be a concern for potential investors focused on cash flow valuation metrics.

Key findings

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This Simply Wall St article is of a general nature. We comment based solely on historical data and analyst forecasts, using an unbiased methodology. Our articles are not intended as financial advice. They do not constitute a recommendation to buy or sell stocks and do not take into account your objectives or financial situation. Our goal is to provide you with long-term analysis based on fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or qualitative materials. Simply Wall St does not hold any of the stocks mentioned.

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