Tuesday, December 10, 2013

Seeking Alpha: The Market Doubts Itochu Will Continue To Outpace Its Rivals

Sell-side analysts can be a stubborn lot. Even when a less-favored company outperforms, it's not uncommon to see follow-up reports declaring that its outperformance can't continue. When looking at the large Japanese trading companies, Itochu's (OTCPK:ITOCY) outperformance certainly stands out - the shares are up more than 50% in Japan while rivals Mitsui (OTCPK:MITSY), Marubeni (OTCPK:MARUY), Sumitomo (OTCPK:SSUMY), and Mitsubishi (MSHBY) are up around 20% to 30%.

Itochu's strong performance doesn't strike me as a fluke. Management has consciously and deliberately sought to create a balanced collection of assets, with operations in food and machinery offsetting the volatility to the commodities operations. With management looking to build its non-resource operations at a 2-to-1 ratio with the resource operations, I believe this will continue to benefit the company's stability and full-cycle returns without overly curtailing the company's upside to higher commodity prices. Investors must note the significant impact of currency on these shares (8001.T shares are up 55% over the past year, while ITOCY is up about 22%), but I believe Itochu's superior returns, shareholder-focused management, and balanced business could merit another 15% to 20% in gains from here.

Read the full article here:
The Market Doubts Itochu Will Continue To Outpace Its Rivals

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