3 Ways To Play Japan's Mitsui & Co.

By Will Ashworth | September 09, 2011 AAA

The definition of conglomerate is "a corporation made up of a number of different, seemingly unrelated businesses." One of the biggest conglomerates anywhere is Mitsui & Co. (OTCBB:MITSY), whose businesses span no less than eight different industries. It's not easy figuring out all the things it does but when you do, I think you'll agree it's a mighty impressive group. Most importantly, I think you'll find its stock is very cheap. If you do decide to buy, I have three ways to play its stock. (To learn more about conglomerates, read Conglomerates: Cash Cows Or Corporate Chaos?)
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Pink Sheets
If you want to go direct, its ADS (20 shares = 1 ADS) is available over-the-counter. Average daily volume is less than 2,500 shares so if you need liquidity, this isn't for you. Only serious buy-and-hold investors need apply. However, if you do have an appetite for thinly traded ADRs, this could be just right. In the past five years, it's traded between a high of $540.69 in September 2007 and a low of $187.73 in December 2008. The average of the high and low is $364.21, which is $46.56 higher than its September 6 price of $317.65. Mitsui expects to generate roughly $5.6 billion in net income in fiscal 2012. Based on its current market cap of $29.1 billion, its earnings yield is 19.2%. Anything over 10 is considered excellent. On the dividend front, it pays out 23% of its earnings or $14.20 per ADS for a yield of 4.5%. This is truly a global business with 275 subsidiaries and investments in 161 companies. One of the most important is its 15% interest in Vale SA (NYSE:VALE), the South American metals giant. In fiscal 2011, its investment in Vale generated almost one-fifth its $3.96 billion in net income. Mitsui's diversified business model makes it an excellent long-term investment indeed.

Exchange-Traded Funds
Investopedia's Aaron Levitt suggested some interesting ETFs in his August 3 article about Japan. The iShares MSCI Japan Index Fund (NYSE:EWJ) is the most straight forward of your options. Mitsui & Co. is the 11th largest holding out of 311 stocks. However, if you truly believe in the company, this isn't particularly effective because the fund invests just 1.38% of its assets in Mitsui. In addition, while Japan certainly is an attractive investment right now, I'm not sure you want to put all your eggs in one basket. It's probably better to find an ETF that holds Mitsui & Co., but is more geographically diverse. The Vanguard MSCI Pacific Fund (AMEX:VPL) has 470 holdings from companies in Japan, Hong Kong, Australia, New Zealand and Singapore. Mitsui and Co. is the 19th largest holding with just less than 2 million shares. With a management expense ratio of 0.14%, if you want Mitsui and Asia at the same time, you can't do much better than this.

Closed End Funds
For those looking for a closed-end version of a Japan fund, Daiwa manages the Japan Equity Fund (NYSE:JEQ), a $89-million fund trading at a 10.59% discount to its net asset value. Over the past 10 years, it's averaged a discount of 5.35%, meaning it's currently trading lower than normal. Mitsui represents 2.33 % of the total portfolio. The fund's largest holding at 4.9% is Mitsubishi UFJ Financial Group (NYSE:MTU). The fund is actively managed beating its benchmark. Keep in mind the annual expense ratio is 1.37%, which is high, especially when compared to the Vanguard fund. The second is from ING, a fund company I really like. It's the ING Global Advantage and Premium Opportunity Fund (NYSE:IGA), a closed-end fund that trades at a 3.07% discount. In October, it will be six years old. Approximately 57% of the holdings are U.S. companies with the rest of the world accounting for the remaining 40%. Japan is the second largest holding at 8.63% with approximately $700,000 invested in Mitsui & Co. It might not seem like a lot but the fund invests in 750 to 950 stocks. This one fund could easily represent all of your equity holdings except maybe a small portion for smaller stocks.

The Bottom Line
Mitsui & Co. is an excellent company. If your portfolio is big enough, I'd recommend owning the company itself. If not, your next best choice is the ING fund, as it covers all the bases. (For more on investing away from home check out Investing Beyond Your Borders.)

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