Goldman Sachs picks the Japanese stocks to buy and predicts a ‘stronger’ economic rebound

Published Tue, Jul 20 202110:30 PM EDT

Lucy Handley @in/lucy-handley-b2b0a61a/@lucyhandley

Analysts at Goldman Sachs have picked several Japanese stocks to buy as they upped their economic forecasts for the fourth quarter, saying they expect a "stronger rebound" due to pent-up demand created by the country's current state of emergency. The new measure, due to the coronavirus pandemic, went into effect on July 12 and sees shorter store opening hours, reduced capacity events and early closing for restaurants and bars in Tokyo, Osaka and the Okinawa prefecture. It is the country's fourth state of emergency since April 2020. Goldman reduced its growth forecast for Japan for the third quarter but raised its expectations for the fourth quarter to 8.4% from 7.7%, as more of the country's population gets vaccinated. "We now expect pent-up demand to be concentrated in 4Q as economic activity normalizes," the bank's analysts said in a note published July 13. The bank also published a series of research notes on Japanese stocks with buy-rated picks including: Heavy machinery company Takeuchi for its likely "high levels" of orders, despite an increase in transport costs. Goldman said the stock had a potential 36.6% upside to its price target in a research note published July 13. Battery component-maker Zeon , following the bank's meeting with the company's head of energy materials. Goldman gave it a potential upside of 60% in a research note published July 12. "We reiterate our Buy rating, which is based primarily on the growth potential of Zeon's specialty materials business, centering on LiB materials," the bank's analysts wrote, referring to the lithium-ion rechargeable battery components the company produces. Relo , a provider of employee benefits. Goldman said the stock has an upside potential of 19.6% to its price target in a note published July 12. Pharmaceuticals company Cosmos , for its expansion potential. "Cosmos has large scope to open new stores, supported by its business model of discounting national brand products, which is unique within the drugstore industry," the analysts wrote. Goldman said the stock has an upside potential of 15.9% to its price target in a note published July 12. Chemicals firm Fujimi , for its "top global share" in a part of the semiconductor manufacturing process known as chemical mechanical planarization, and estimated the stock has a potential 36.2% upside to its price target, in a research note published July 12. Robot and electricals manufacturer Yaskawa for its "strong results" that beat Goldman's "bullish estimates on all counts." Its servo motors — parts embedded into a robot's joints — saw orders grow 74% year-over-year, the bank said, and it estimated that the stock has a potential 33.1% upside to its price target in a July 9 research note. Goldman forecast earnings per share growth of 33% for 2021 for the Tokyo Stock Price Index (TOPIX), in a July 2 note. "We believe it's appropriate to shift the weight somewhat from value to growth/quality," the analysts wrote — value stocks are those that investors believe are inexpensive, while growth stocks are those expected to do better than the market. With this in mind, Goldman rebalanced some of its stock baskets, removing some shares and adding others. For example, it added IT company Fujitsu and automaker Honda Motor and equipment company Toyota Industries to its "Japan stocks in which foreign mutual funds are most Overweight," basket.

View of Mount Fuji and the Tokyo skyline at dusk.

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