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Japan Likely to Hit Recession: Beat the Blues With 3 Picks

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According to the latest government estimate, Japan’s economy contracted 1.6% in fourth-quarter 2019 for an annualized decline of 6.3%, raising fears of a recession. The third largest global economy after the United States and China is further pushed to the brink of a slump by the coronavirus outbreak in China.

What Ails Japan’s Economy?

After much delay, the Abe administration increased the consumption tax for the first time in five year to fund welfare programs and trim its huge debt burden. The government exempted most food items and offered a 5% rebate on purchases made using electronic payments. However, the measures appeared to have a limited effect as it kept out the bulk of the older generation, who seldom use electronic payment platforms.

Japan was also rattled by the widespread devastation caused by Typhoon Hagibis, which caused heavy rains and windstorms leading to floods and landslides in mid-October. The catastrophic event is estimated to have led to economic costs of more than $10 billion, dealing a significant blow to the country’s GDP.

Flirting With Recession

In order to tide over the storm, the government unveiled ¥13.2 trillion ($121 billion) package to reconstruct and upgrade the infrastructure ravaged by the typhoon and invest in new technologies. Just when it appeared that the country was getting back to its feet, the latest data revealed that private consumption fell by an annualized 11% in the fourth quarter, as households cut back on purchase of cars, cosmetics and domestic appliances. Businesses also curtailed investments by around 14% as they preferred to wait for the uncertainty to lessen and overall conditions to improve before committing on more funds.

To make matters worse, the coronavirus pandemic that originated in the Wuhan Province, China, has dented the prospects of an early turnaround with the contagious disease reportedly infecting more than 71,000 worldwide, including 400 confirmed cases in Japan. This has affected the tourism industry of the country, which has historically attracted a lion’s share of its tourists from China. This, in turn, is likely to hurt the economic growth of Japan and the GDP is widely expected to decline in the first quarter of 2020, thereby resulting in a recession with two consecutive quarterly contractions.  

3 Key Picks

Amid the doom and gloom, we have handpicked some Japan-based stocks that possess potential to perform well in the long run. These stocks possess either a Zacks Rank #1 (Strong Buy) or 2 (Buy) and boast healthy fundamentals for a likely solid ROI in 2020. You can see the complete list of today’s Zacks #1 Rank stocks here.

Sony Corporation (SNE - Free Report) : Headquartered in Tokyo, Japan, Sony is engaged in the design, manufacturing and sale of several consumer and industrial electronic equipment. The company’s product roster comprises audio and video equipment, televisions, displays, semiconductors, electronic components, gaming consoles, computers and computer peripherals and telecommunication equipment.

This Zacks Rank #2 stock has a VGM Score of B and delivered a positive earnings surprise of a solid 97.8%, on average, in the trailing four quarters. Sony has gained 48.9% in the past year. Earnings estimates have risen 17.1% in the past 90 days to $4.39 per share for the current fiscal.

Nomura Holdings Inc. (NMR - Free Report) : Headquartered in Tokyo, Japan, Nomura is a leading financial services group with worldwide operations, providing a wide range of value-added financial services and competitive products. This Zacks Rank #2 stock has long-term earnings growth expectation of 51.1%. Nomura has gained 24.6% in the past year. Earnings estimates have surged 42.4% in the past 90 days to 84 cents per share for the current fiscal.

LINE Corporation (LN - Free Report) : Founded in 2000 and headquartered in Tokyo, Japan, LINE offers a platform for mobile messaging and communication services, content distribution, and life and financial services. This Zacks Rank #2 stock has gained 32.9% in the past year. Earnings estimates have improved 1.2% in the past 60 days for the current fiscal.

Moving Forward

As the economy appears a little shaky, betting on some possible outperformers backed by a solid Zacks Rank and a healthy return could be a great idea for investors. These stocks seem to hold great promise for the future and are likely to reward shareholders generously.

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