Most of the conversations we have had with clients the past week have concerned Japan, and whether the natural disaster will have an affect on the global economy, the U.S. economy and several stocks in our Traditional Recommended Portfolio.
Many of Japan’s manufacturers were not located in the areas hit by the natural disaster. The factories are fine and people can get to work. However, there is an infrastructure problem. The concern is the rolling brownouts and lack of power for the machinery in the factories. There is also a problem with getting the products to market.
AFLAC Inc. (NYSE: AFL) While you know Aflac for its supplemental insurance and squawking duck, the company derives 76% of its revenue from Japan.
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85% of the policies sold in Japan are supplemental cancer insurance, designed to pay for costs not reimbursed under Japan’s national health insurance system.
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The other 15% of policies are life insurance.
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Only 1.4% of Aflac policies sold in Japan are in the areas affected by the earthquakes and tsunami.
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While the damage to Japan is devastating, and the potential danger of nuclear meltdowns unknown, there is a chance that sales may increase with the Japanese wanting to buy supplemental cancer insurance.
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Initially, the stock was driven down around 10%, but we believe that the stock is attractive at its current price.
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Analysts at Bank of America and Deutsche Bank have upgraded the stock to a buy.
Honda Motor Co. (NYSE: HMC) is a Japan-based company that develops, produces and manufactures a variety of motor products, ranging from small general-purpose engines and scooters to specialty sports cars.
- With the news, the stock only fell about 5%.
- Honda builds the cars it needs for the United States, in the United States.
- They have located their manufacturing plants close to the source of revenue.
- Some parts are not built in the United States.
- Some hybrid models are built in Japan.
The Technology sector also has some exposure to Japan with chip manufacturers.
- Chips that store data for electronics like cameras, smartphones, and tablet computers may be hard to come by, which will cause a price increase.
- A factory that produces a specialized epoxy for electronics, located near one of the nuclear reactors, has been offline for more than a week.
- Apple Inc. (NASDAQ: AAPL) has already purchased their second quarter supply.
Tiffany & Co. (NYSE: TIF), a fine jeweler and specialty retailer may also feel the effects. Japan has contributed to the profits of many luxury retailers.
- Japan accounted for 19% of Tiffany & Co. (NYSE: TIF) sales in 2009.
- While still significant, Japan has become a smaller part of Tiffany’s business. In 2000, Japan contributed 28% of sales.
- Tiffany has a good growth presence in China.
- Discretionary spending might decrease if the Japanese economy takes a hit.
Would we sell our holdings in these companies? We believe the markets are fairly efficient. Right now we see no reason to sell. If you do not need the money within 10 years, we suggest staying invested in the market.
- At only 10% down, analysts have not downgraded these companies.
- We may see some move to a hold position.
- We may even see buy recommendations because of the price.
- Honda and Aflac’s stocks bounced back a little on Thursday.
- Overall, we believe the stock market has reacted to this disaster in a perfectly rational way.
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