Warren Buffett has invested $ 7 billion in 5 Japanese trading houses. Here is an overview of “sogo shosha”
Placement of the summary list
- Warren Buffett’s Berkshire Hathaway acquired 5% of the shares of the five largest Japanese “sogo shosha” or general trading companies: Itochu, Marubeni, Mitsubishi, Mitsui and Sumitomo.
- Their operations span multiple sectors including mining, energy, food, aerospace, retail, real estate, finance, consulting and logistics.
- Buffett may have supported them because of their depressed ratings, improved management and similarities to Berkshire, Fidelity International research analyst Maria Nikishkova told Business Insider.
- If Berkshire affiliates collaborate with sogo shosha companies, it could end up “making Buffett’s entry point very attractive,” she said.
They are the largest of the country’s “sogo shosha”, general trading companies that engage in a wide range of international business activities.
These range from metal mining to power generation, meat processing, aircraft parts manufacturing, store operations, real estate investing and the provision of services such as financing, advice and logistics.
Their diverse operations give them a “holistic” view into many industries, which they tap to develop new business models, technologies and services, Mitsubishi said in its latest strategic report.
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The “big five” sogo shosha have market caps of between $ 10 billion and $ 42 billion, annual revenues of $ 48 billion to $ 136 billion, and profits ranging from $ 4.9 billion in net income to a net loss of $ 1 , $ 8 billion, according to Sentieo, a financial place researcher.
Their stock prices have fallen an average of 7% this year, and all but one (Itochu) are trading below book value, meaning their market caps are below their net assets.
However, it is difficult for investors to determine whether companies are undervalued, Maria Nikishkova, research analyst at Fidelity International, told Business Insider. ROI times vary from company to company and it is difficult to assess their overall risk profiles, she said.
Additionally, their many joint ventures mean they do not have full control over their operations, their late-stage investments often have limited upside potential, and their earnings can be volatile, Nikishkova continued.
They have also been forced to write down the value of some assets due to financial crises, pressure on commodity prices and low interest rates, she added.
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Buffett’s decision to bet on them is an “interesting development,” Nikishkova said. This likely reflects her signature strategy of buying companies trading below their intrinsic values, she continued.
The support of the famous investor may also be due to his increased focus on judicious allocation of capital, generation of liquidity and increasing shareholder returns through dividends and redemptions, Nikishkova added.
Other key factors could be the similarities between Berkshire and sogo shosha, and the potential for collaborations, she said.
Berkshire owns many companies – including See’s Candies, Geico, PacifiCorp and the BNSF Railroad – and has massive stakes in Apple, Bank of America, Coca-Cola and other public companies.
If he invests alongside or forms joint ventures with the Japanese giants, it could increase the value of sogo shosha, “making Buffett’s entry point very attractive,” Nikishkova said.
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