Posted by: Ian Rowley on January 21, 2008
One aspect of being a journalist at BusinessWeek is that we’re not supposed to buy shares in the companies we write about. Indeed, each year in January, BusinessWeek asks us to fill out a form in which correspondents declare stocks that we or our nearest and dearest hold. For the record, I don’t own any stocks, although I have been known to dabble in broad-based investment trusts.
While I’d like to think I could cut as a money manager, it’s probably for the best that I’m proscribed from testing my investor credentials. After all, who would have thought that Mazda would be the worst performing major auto stock over the last 12 months (not me looking at this story from last March)? Despite Mazda’s new models being well-received and its profit margins increasing, its stock is down 45% since this time last year.
Perhaps even more surprising is that stock in all-conquering Toyota, easily the world’s most profitable automaker, fell 32% and Honda, which made $3.25 billion in the last quarter, 35% during the same period. Both are expected to post more record earnings when the current financial year ends in March. By contrast, perpetually troubled GM and Ford, which owns a third of Mazda, are down a mere 27% and 29%, respectively.
Of course, one big reason Japanese auto stocks are slumping is concerns that the sub-prime scarred U.S. market will shrink faster than previously expected. That’s bound to hurt Japan’s Big Three which make half or more of their profits in the U.S. Then there’s the risk that a higher yen will eat into profits and the current vogue is for nervy investors to trim exposure to Japanese stocks of all flavors.(The Nikkei 225 index is way down in 2008).
Yet for all that, it’s hard to see how Japan’s auto stocks warrant such large sell-offs. For one thing, strong sales in emerging markets, and especially China, are likely to offset a slowdown in the U.S. market. Toyota, for example, increased China sales by 50% in 2007 and a lot of those were highly profitable Camrys built at its plant in Guangzhou. Sales in the Middle East and Russia are also booming and nearly all of Japan’s carmakers are ramping up domestic production by splashing out on new plants to meet global demand. And even as the U.S. sales slow, analysts point out that Japanese automaker are in a good position to benefit from high gas prices. Whether that makes Toyota, Honda and co a “buy”, though, I’d rather not say.