Berkshire Hathaway's holdings in five Japanese companies could go beyond 10%, Jefferies says

Published Tue, Jun 20 202311:30 AM EDTUpdated Tue, Jun 20 20232:59 PM EDT

Warren Buffett's Berkshire Hathaway once again increased its stakes in five Japanese trading houses, and Jefferies said to watch out for more such buying from the Oracle of Omaha. The Omaha-based conglomerate on Monday said its wholly owned subsidiary National Indemnity Company had hiked its bets in Itochu , Marubeni , Mitsubishi , Mitsui and Sumitomo to more than 8.5%. Thanh Ha Pham, equity analyst at Jefferies, said Berkshire's holdings in these companies could go even beyond 10% in the future, and collaboration with Berkshire's businesses is another avenue to explore. "We think there is a good likelihood that Berkshire would continue increasing its stakes in the GTCs, and could even go beyond the 10% threshold as the relationship between Japanese trading houses' management and Warren Buffett remains robust with mutual understanding of the business model and management style," Pham said, referring to general trading companies. Buffett first acquired these stocks on his 90th birthday in August 2020 through regular purchases on the Tokyo Stock Exchange, saying he was "confounded" by the opportunity and was attracted to their dividend growth. The 92-year-old Buffett paid a visit to Japan and met with the heads at these Japanese firms earlier this year. Similar to Berkshire, the Japanese trading firms, also known as sogo shosha, are conglomerates involved in a wide range of products and services, including energy, machinery, chemicals, food, finance and banking. Berkshire said it intends the Japanese investments as long-term positions, but Buffett pledged he will only purchase a maximum of 9.9% in any of the five firms unless given specific approval by each company's board of directors. Jefferies has a buy rating on Mitsubishi and Sumitomo, citing their solid dividend yield and buyback programs. The Wall Street firm has a hold rating on Mitsui and Itochu, noting the former's share repurchase program is ending in July. Jefferies has no rating on Marubeni. "By investing in trading houses, investors obtain a well-diversified business portfolio that is not exposed to any single industry or geography," Pham said. "Note that on top of shareholder returns, investors could add to their returns if they use currency swaps, capturing the interest rate differential between U.S. and Japan. As most GTCs guarantee dividends, we believe the downside is limited." Berkshire said it owns no other investments in Japan.