Shin-Etsu Going Through A Choppy Bit, But Still Attractive

I was a little cautious about Japan’s Shin-Etsu Chemical (OTCPK:SHECY) back in August of 2018, largely due to the risk of how the market would react to the ongoing correction cycle in semiconductors, not to mention the risks from a macroeconomic slowdown affecting businesses like PVC/Chlor-alkali and Silicones. Since then, the shares are down about 6% (versus a roughly 6% rise in the S&P 500), though the company has done pretty well relative to expectations and the challenges in these businesses are likely to be relatively short-lived.

I believe Shin-Etsu is about 20% to 25% undervalued today, and I believe this company is both one of the best-run in Japan and one of the best-run in the chemical/specialty chemical space. Timing is tricky, though. I do think there’s some risk of a “lower for longer” correction cycle in the more industrial-exposed businesses, but I also think waiting to buy the shares at the absolute bottom is a good way to miss out. All told, for investors with a longer horizon and who are willing and able to overlook some near-term underperformance risk, I believe these shares are worth considering.

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Shin-Etsu Going Through A Choppy Bit, But Still Attractive