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6 Japan Stocks, ETFs to Watch

Stocks in this article: KUB KYO HIT EWJ ITF JOF

Analysts expect Hitachi's earnings to decline in 2012. I find that hard to believe given the massive stimulus that will be unleashed upon the country. Furthermore, as is the case with Kyocera, Hitachi sells at a discount to the market multiple. I value shares of Hitachi at least at their recent high of $65.

We can also go with a fund strategy. Two exchange-traded funds give you diversified exposure to the broader Japanese markets. The most actively traded Japanese ETF is the iShares MSCI Japan (EWJ), which focuses on large-capitalization Japanese stocks. The iShares family of funds also offers an ETF, which directly correlates to the Tokyo Stock Price Index, or TOPIX: the iShares S&P TOPIX 150 (ITF). I would note that the iShares TPIX 150 is far less actively traded and hence has less liquidity than the iShares MSCI Japan.

I am going to pass on both of those ETFs in favor of a closed-ended fund. The fund I have my eye on is the Japan Smaller-Capitalization Fund (JOF). As its name implies, this fund focuses on smaller-cap companies. My opinion is that any massive effort to rebuild Japan, especially with governmental stimulus, will be focused not just on the large companies as I mentioned before but also on smaller and regional companies. The Japan Smaller-Cap Fund will enable investors to benefit from the spreading of reconstruction money across the entire country and economy. I would also note that this closed-ended fund trades at a small discount to net asset value of about 2%. In other words, for every $98 you invest in the fund, you are getting $100 of assets.

The Japanese market and its related stocks and funds are quite heavily oversold. Opportunities are presenting themselves, but there is no urgency to rush in right now. The situation in Japan, especially as it relates to the reactors of the Fukushima Daiichi nuclear power plant, is very tenuous. A further deterioration of the condition at that facility will likely lead to further market weakness. A resolution of that crisis will likely mark a stabilization of the financial markets. However, we cannot predict what outcome will occur or when. We do know that the road to recovery will be long and protracted.

Hence, the strategy for opportunistic stock pickers is to identify some target stocks or funds now and be prepared to act when we have more clarity as to the resolution of the nuclear crisis, because that will mark the beginning of the reconstruction process.

-- Written by Scott Rothbort in Millburn, N.J.

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At the time of publication, Rothbort was long DE, CAT and JOF, although positions can change at any time.

Scott Rothbort has over 25 years of experience in the financial services industry. He is the Founder and President of LakeView Asset Management, a registered investment advisor specializing in customized separate account management for high net worth individuals. In addition, he is the founder of TheFinanceProfessor.com, an educational social networking site; and, publisher of The LakeView Restaurant & Food Chain Report. Rothbort is also a Term Professor of Finance at Seton Hall University's Stillman School of Business, where he teaches courses in finance and economics. He is the Chief Market Strategist for The Stillman School of Business and the co-supervisor of the Center for Securities Trading and Analysis.

Mr. Rothbort is a regular contributor to TheStreet.com's RealMoney Silver website and has frequently appeared as a professional guest on Bloomberg Radio, Bloomberg Television, Fox Business Network, CNBC Television, TheStreet.com TV and local television. As an expert in the field of derivatives and exchange-traded funds (ETFs), he frequently speaks at industry conferences. He is an ETF advisory board member for the Information Management Network, a global organizer of institutional finance and investment conferences. In addition, he is widely quoted in interviews in the printed press and on the internet.

Mr. Rothbort founded LakeView Asset Management in 2002. Prior to that, since 1991, he worked at Merrill Lynch, where he held a wide variety of senior-level management positions, including Business Director for the Global Equity Derivative Department, Global Director for Equity Swaps Trading and Risk Management, and Director for secured funding and collateral management for the Global Capital Markets Group and Corporate Treasury. Prior to working at Merrill Lynch, within the financial services industry, he worked for County Nat West Securities and Morgan Stanley, where he had international assignments in Tokyo, Hong Kong and London. He began his career working at Price Waterhouse from 1982 to 1984.

Mr. Rothbort received an M.B.A., majoring in Finance and International Business from the Stern School of Business, New York University, in 1992, and a B.Sc. in Economics, majoring in Accounting, from the Wharton School of Business, University of Pennsylvania, in 1982. He is also a graduate of the prestigious Stuyvesant High School in New York City. Mr. Rothbort is married to Layni Horowitz Rothbort, a real estate attorney, and together they have five children.

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