Anyone who follows Japanese business these days knows its manufacturers are taking it on the chin as export markets shrivel up due to the global recession. It seems companies like Toyota (NYSE:TM) and Honda (NYSE:HMC) are struggling to make money just like GM (NYSE:GM) and Ford (NYSE:F), albeit for different reasons.

While GM and Ford are losing money because no one wants to buy their products and their cost structure is far too high, the Japanese are struggling due to a wildly appreciating currency. In 2008, the yen appreciated 22% against the dollar and 30% against the euro. For every one-yen increase against the dollar, Toyota loses $450 million in operating profits and Honda $200 million. While it's hard to imagine things are much different at Canon (NYSE:CAJ), I do believe there exists five good reasons to invest in the digital camera maker at this time. (Read how the relationships between pairs can help control risk exposure and maximize profits in Using Currency Correlations To Your Advantage.)

No. 1: Much Better Balance
Ten years ago, Canon was principally a maker of photocopiers. Its business machines division generated 83% of its total revenue, while cameras represented less than 10% of that number. Fast-forward 10 years and cameras now account for almost 26% of Canon's overall revenue. Add in another 10% from its optical division, which makes aligners for LCD panels and steppers for semiconductors, and you have a business that is better prepared to withstand a lengthy global downturn.

No. 2: Financials Strong Despite Drop
In October, Canon revised its sales and earnings projections downward to reflect the appreciation in the yen. It felt revenues for the entire year would be $40.9 billion with net income around $3.6 billion. That's decreases of 5.2% and 23.2% respectively in 2008. While this isn't what any board wants to hear at the annual meeting, they are still very good results in light of incredibly difficult business conditions. In fact, its annual revenues should be the second highest in company history (2007 was higher) and net income will be close to matching last year's record results as well. (Learn more in our Financial Statements Tutorial.)

No. 3: Growth Continues
A sign of a good company in my opinion is one that consistently adds employees. Canon has added jobs in 10 consecutive years, finishing the third quarter with 148,905 employees worldwide, up from 79,799 at the end of 1998. Sensible human resource policies generally come from sensible management teams. It's nice to see a company that understands the concept of responsible hiring.

No. 4: Award Winning Products
The February issue of Macworld magazine gives two of Canon's products, the Pixma MX850 printer and Eos Rebel XSi camera, ratings of four-and-a-half mice out of five. In addition to Macworld, in early January, Buyers Laboratory Inc. named Canon USA the "Multi-Function-Product Line of the Year." With new high definition camcorders on the market, any accolades from industry sources are helpful.

No. 5: Watch and Wait
Canon's stock hasn't been this low since 2004. Some analysts predict earnings per share (EPS) to drop by half in 2009, generating a forward P/E of 20. If all comes to pass as expected, Canon's stock will drop into the 20s, becoming too good a deal for investors to pass up. Patience has its virtues.

Bottom Line
When a company has as a good product, strong financials and growth potential, as Canon does, investors start to take notice. Add the beaten down stock, and eventually one must recognize that the markets have it wrong. When this occurs, plan for the stock price to make great strides.

Related Articles
  1. Stock Analysis

    5 Cheap Dividend Stocks for a Bear Market

    Here are five stocks that pay safe dividends and should be at least somewhat resilient to a bear market.
  2. Investing

    How to Win More by Losing Less in Today’s Markets

    The further you fall, the harder it is to climb back up. It’s a universal truth that is painfully apparent in the investing world.
  3. Fundamental Analysis

    Use Options Data To Predict Stock Market Direction

    Options market trading data can provide important insights about the direction of stocks and the overall market. Here’s how to track it.
  4. Stock Analysis

    2 Oil Stocks to Buy Right Now (PSX,TSO)

    Can these two oil stocks buck the trend?
  5. Investing News

    What Alcoa’s (AA) Breakup Means for Investors

    Alcoa plans to split into two companies. Is this a bullish catalyst for investors?
  6. Stock Analysis

    Top 3 Stocks for the Coming Holiday Season

    If you want to buck the bear market trend by going long on consumer stocks, these three might be your best bets.
  7. Investing News

    Could a Rate Hike Send Stocks Higher?

    A rate hike would certainly alter the investment scene, but would it be for the better or worse?
  8. Investing News

    Corporate Bonds or Stocks: Which is Better Now?

    With market volatility high, you may think it is time to run for corporate bonds instead of stocks. Before you do take a deeper look into which is better.
  9. Mutual Funds & ETFs

    Using Short ETFs to Battle a Down Market

    Instead of selling your stocks to get gains, consider a short selling strategy, specifically one that uses short ETFs that help manage the risk.
  10. Investing Basics

    How to Diversify with International Stocks

    Diversifying with international stocks can benefit most portfolios, but beware of country risk.
  1. What are the risks of annuities in a recession?

    Annuities come in several forms, the two most common being fixed annuities and variable annuities. During a recession, variable ... Read Full Answer >>
  2. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  3. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  4. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  5. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  6. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>

You May Also Like

Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!