Over the past five years, the stock prices of these five firms have more than tripled, with the standout performer seeing an astonishing increase of over 500%, as per JPMorgan’s analysis. The investment bank noted, “We think it was clearly the Buffett effect that led the trading companies’ shares to break out of their long-term phase of relative undervaluation.” They further emphasized that Berkshire Hathaway’s role as the largest shareholder has significantly influenced the management teams’ awareness of share prices and their strategies regarding capital allocation, particularly concerning shareholder returns.
On Tuesday, JPMorgan initiated coverage on these Japanese companies, assigning an overweight rating to Itochu, Mitsui & Co., and Marubeni, while giving a neutral rating to Sumitomo and an underweight rating to Mitsubishi. By the end of 2024, Berkshire’s total investment in these holdings was valued at $13.8 billion, with their market value soaring to $23.5 billion.
Buffett revealed that his interest in these companies began with a “little handbook” that listed thousands of publicly traded firms in Japan. At that time, these stocks were trading at significant discounts, and he was drawn to their dependable dividends and diversified, cash-generating business models. “I was just going through a little handbook that probably had two or three thousand Japanese companies in it,” he shared during Berkshire’s annual meeting in May, shortly before announcing his plans to step down as CEO at the end of 2025. “There were these five trading companies selling at ridiculously low prices. So I spent about a year acquiring them.”
Additionally, Buffett has strategically mitigated currency risk by selling Japanese debt, allowing him to benefit from the difference between the dividends from his investments and the bond coupon payments he owes. According to Berkshire’s earnings report, the expected annual dividend income from these Japanese investments in 2025 is projected to be around $812 million, while the interest cost of Berkshire’s yen-denominated debt will be approximately $135 million.
JPMorgan anticipates that Buffett will continue to increase his stakes in these major trading companies. Buffett has indicated that Berkshire has reached an agreement with these firms to exceed the initial 10% ownership ceiling. As of August, Berkshire’s stakes in both Mitsubishi and Mitsui & Co. surpassed the 10% mark, according to regulatory filings. “We expect Warren Buffett’s Berkshire Hathaway to continue to build up stakes in the sector’s big five companies at a moderate pace for the time being,” JPMorgan stated.
Buffett has made it clear that he and his successor, Greg Abel, are committed to a long-term strategy. “In the next 50 years … we won’t give a thought to selling those,” he asserted in May. “We will not be selling any stock. That will not happen in decades, if then.” He added, “The Japan investment has just been right up our alley.” For investors, Buffett’s venture into Japan serves as a powerful reminder that even in his 90s, the legendary stock picker continues to surprise the market and achieve remarkable success.
