|Rock you like a hurricane: Japan's defense stocks are soaring with the nation's security ambitions.|
Tomorrow, Japan is expected to loosen previous prohibitions on security-related activities, much to the dismay of those who believe that things should just be left alone after years of relative postwar peace and prosperity:
Japanese Prime Minister Shinzo Abe’s bills to expand the role of the military will go to a lower house vote Thursday, after weeks of debate that has eroded his support and sparked opposition protests that echo those that toppled his grandfather more than half a century ago.Since it's possible to see every sort of geopolitical event as an investment bonanza, Barrons has a feature on buying stocks that should benefit from a remilitarized Japan. To no one's surprise, the list is dominated by arms contractors for Nippon:
The bills were approved Wednesday in a special security committee session marked by jostling, shouting and even tears from placard-holding opposition lawmakers that almost drowned out the chairman’s voice. They are all but certain to pass due to the ruling coalition’s two-thirds majority. If the upper house refuses to take up the bills, a second vote in the lower house can pass them into law with a two-thirds majority.
The legislation enshrines in law Abe’s 2014 reinterpretation of the pacifist constitution and would allow Japan to defend other countries as part of a strategy to balance a rising China. Media polls show the majority of voters are opposed to the changes and disapproval of the cabinet now surpasses approval.
- Kawasaki Heavy Industries ( 7012.JP): Kawasaki Heavy makes transport aircraft for Japan’s military, which looks like it’s going to be headed places. Kawasaki Heavy’s shares have climbed about 12% in the past three months, but it still offers one of the sector’s most attractive dividends, paying almost 2%. Nomura see its stock rising another 30% to 790 yen.
- Fujitsu ( 6702.JP ) : Fujitsu’s information systems serve as the nerve center for many militaries, particularly in logistics. It stock has fallen roughly 4% in the past three months, which has left it trading at a relative bargain of 11 times projected earnings. Morgan Stanley sees the stock climbing 31% to 890 yen.
- Fuji Heavy Industries ( 7270.JP ): Fuji Heavy, maker of Subaru cars, also builds helicopters for Japan’s defense forces and recently won a 35 billion yen ($293 million) settlement from Japan’s Ministry of Defense after a contract to build attack helicopters was pared down. Its shares have climbed almost 10% in the past three months, yet it still trades at just 9.8 times projected earnings. It’s hard to find an analyst who doesn’t like the stock. J.P. Morgan believes it will climb as much as 21% to 5,300 yen.
- Mitsubishi Electric ( 6503.JP ): This appliance-maker’s stock has soared like the missiles it builds, rising 22% in the past three months. Yet its shares are trading at only 16 times projected earnings and offer a dividend yield of roughly 1.7%, according to Bloomberg data. Morgan Stanley still sees 17% upside to this stock, with a target price of 1,900 yen.
UPDATE: As expected, Japan's parliament easily approved of Abe's changes to the interpretation of the Japanese constitution today.