Good value and quality >3% dividends in Japan picking up the first ripples of Momentum

17th Mar '21 by DamianB

9 comments 551 reads

There is a notable rotation into value in Japan right now.

If you have some spare Yen and are hunting for high probability entry levels on > 3% DY stocks.... Japan is currently screening well for:

Very weak longer term price performance eg , eg, 3 year RoC < 15%
Dividend Yield > 3%
VR > 85
QR > 50 (or what ever you want to use for your Q definition. Maybe RoE>15% and NG<50% ???)
Dead base with relatively narrow 52 week H-L range (optional, can be tricky)
A small squirt in momentum out of a dead base, eg Price above 130 day MA and a 1 month RoC > 5%. Intentionally small for a wide net to get some subtle fish.

Then, manually-human screen each candidate for:

A "nice" looking monthly chart... near all time lows, or near a long held long term base of range, a bending turn up out of that etc
A significant earnings release supported by a sales increase (or guidance upgrade, hard to find and read) that coincides with the "small squirt in momentum out of a dead base" on a weekly chart. Note: I DO NOT screen for this in the machine-screening stage... it is just too nebulous (example among shortcomings: cant capture big negative to positive EPS swings, which are common after the Covid earnings holes out of which many companies are now rapidly climbing)
With a surge in weekly volume to accompany the decisive break out on earnings (again, don't machine screen for this, do it manually to capture the variations in form with some human fuzzy logic)

This will find some apparently dependable quality companies that are grossly undervalued and trading at defendable low price levels offering maybe high probability entry levels. Note the low price levels often are defined by the aggressive Mar2020 Covid low being retested a few times consequently. These should be strong bases. Then, with earnings catalyst, the stock woke up and popped out into what could be the very first move in a new up trend. Some are taking off from there without a pull back. But to further refine the high probability entry, I'd wait for a PB to the 10 week ma, or near there. Or the anchored VWAP from the low of the week that started to price break out. Or a pullback to the support level that previously defined the top of the dead range...…

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DamianB

17th Mar '21

Clarification... RoC = Rate of Change. Not Return on Capital.

My old terminology.

Absolute price chance in the Screener.

Also, re "nice" looking monthly chart

For me that means a compressed view of 10-20 years history. Amazing what a picture that can paint.

Brigra

Thanks for an interesting post, I will have a look at this.

High QM stocks in Japan have been doing well for me over the last six months, but I've noticed a rotation away from them recently.

There is a nice tailwind in the Japanese market, with the Japanese Government's version of QE involving buying up large chunks of it.

Also when the clocks go back in the UK, Tokyo will close at 7am, which makes live trades a bit easier!

18th Mar '21

TYO:9368 is an ok example from todays screening for value + yield + some quality coming out of a defendable long term base.

Love the aggressive double tests of the 830yen low twice since 2019. Shows clearly on the weekly. Now breaking out of a well tested 1160yen resistance on volume.

Why do technically strong base setups and volume breakouts matter for yield hunting? Because, as Mike Tyson said: "everyone has a dividend yield income plan until they get capital-loss punched in the face".

3.33% DY is nice income in today's income starved world. But meaningless if you are buying at a time when the price downside probability is greater than the upside probability. It is easy to find yield, hard to find yield at the right time for capital preservation.

VR = 96

Quality is ok

DY 3.33%

Highest NIBT and EPS since SoP records in 2015

I'd buy this if it got back near 1160 on short term profit taking. And dump it if it went below 1000, and realise a 1% loss on my risk capital (fixed fractional position sizing)

Hi Brian, I didn't see your reply as the website doesn't send me notifications of replies.

Japanese Momentum was doing well for me last year, but I bungled it with over enthusiasm and didn't capitalise on the opportunity as I should have done.

As for time changes, I wish other countries would stop doing that. Been many years in countries without summer time changes. Just moved to another such country.

Things to know about the Japanese market:

minimum parcel size is 100 shares. Which can be a problem depending on the price of the share. Or if you use wide stop loss levels, but only risk a small percentage of capital on an investment.
Company quarterly results are not for the last quarter, but for the cumulative quarters for that FY. eg, Q3 is the sum of Q1, Q2 and Q4. It is annoying.

This is what I call a nice long term monthly chart.

Potentially coming out of that base you have a 3.36% DY payer with:

VR = 98

QR = 52

RoE = 9%

NG = 40%

And EPS growth catalyst, but not amazing at all. But to some degree, who cares:

if the market likes the latest earnings and guidance, then I like them as well.

TYO:9312

Hi DamianB,

An interesting paper on Japanese value just published by GMO here.

https://www.gmo.com/europe/res...

though it may just confirm what you already know!

19th Mar '21

That's interesting, thanks Brian.

I didn't sniff out Japan as this opportunity. Japan sniffed me out as small and mid cap price action started putting many names onto my value screens, particularly if dividend hunting.

From there I became aware of the underlying cause of the price action, and your linked article sure says what I found as I dug deeper.

Good value and quality >3% dividends in Japan picking up the first ripples of Momentum

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DamianB

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