{"id":33029,"date":"2012-10-18T09:05:39","date_gmt":"2012-10-18T13:05:39","guid":{"rendered":"http:\/\/countingpips.com\/forex-news\/2012\/10\/japanese-purchase-of-sprint-is-an-act-of-desperation\/"},"modified":"2012-10-18T09:05:39","modified_gmt":"2012-10-18T13:05:39","slug":"japanese-purchase-of-sprint-is-an-act-of-desperation","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex-news\/2012\/10\/18\/japanese-purchase-of-sprint-is-an-act-of-desperation\/","title":{"rendered":"Japanese Purchase of Sprint is an Act of Desperation"},"content":{"rendered":"

By The Sizemore Letter<\/a><\/p>\n

For those who might have missed the news, a Japanese company is buying American mobile phone operator Sprint Nextel (NYSE:$<\/span>S<\/a>).<\/strong><\/p>\n

By buying Sprint, SoftBank will jump from being Japan\u2019s third-largest mobile provider to being one of the largest providers in the world.<\/p>\n

But Sprint?<\/p>\n

Sprint is a mess.\u00a0 I recommended the company last year as a deep value play, as the company was priced so cheaply as to be worth more dead than alive.\u00a0 But I never\u2014at any point\u2014believed that Sprint was a quality company.\u00a0 It was a cigar butt with a few puffs left in it and nothing more.<\/p>\n

What\u2019s more, Sprint is in that unenviable position of being \u201cstuck in the middle.\u201d\u00a0 With only 16% of the U.S. market, Sprint lacks the scale of an AT&T (NYSE: $<\/span>T<\/a>)<\/strong> or Verizon (NYSE: $<\/span>VZ<\/a>)<\/strong>, and its high debt load makes growth difficult to manage. Yet Sprint is too big and bloated to compete with smaller upstarts like MetroPCS (NYSE: $<\/span>PCS<\/a>)<\/strong> that appeal to cost-conscious consumers and pre-paid subscribers.<\/p>\n

So why SoftBank\u2019s interest?<\/p>\n

The answer to that question is easy.\u00a0 They\u2019re desperate for mobile subscribers anywhere <\/em>they can get them, even at an also-ran like Sprint.<\/p>\n

You see, Japan is dying.\u00a0 And I mean that literally.\u00a0 The Japanese population is actually shrinking, as deaths due to old age outpace new births, and aging.\u00a0 Roughly a quarter of the Japanese population is already over the age of 65.<\/p>\n

How do you grow a mobile phone service when you have fewer consumers to sell to every year\u2014and when the consumers you have are aging and using their phones less?<\/p>\n

The answer, of course, is that you don\u2019t.\u00a0 And the same is true of virtually all Japanese companies.<\/p>\n

Readers might think back to the 1980s, when it seemed like Japanese corporations were taking over the world.\u00a0 They even owned\u2014gasp!\u2014the Pebble Beach golf course and the Rockefeller Center.\u00a0 A severe stock market and real estate crash put the brakes on Japanese ambition, but demographic necessity suggests that Japanese companies will go on another binge of acquisitions, and soon.<\/p>\n

In the 1980s, they bought trophy assets like Rockefeller Center.\u00a0 Today, they buy burned-out cigar butts like Sprint.\u00a0 How the mighty have fallen.<\/p>\n

They\u2019re buying more than Spint, however.\u00a0 $<\/span>FILE<\/a>\/EY_JPN_OUTBOUND_FINAL.pdf”>Ernst & Young reported<\/a> that\u00a0 Japanese purchases of foreign assets were up 81% last year<\/p>\n

This is a trend that I see having legs.\u00a0 Investing in it is a little trickier, however.<\/p>\n

Anticipating what the Japanese will buy and getting in line before them is tricky; few investors would have seen the SoftBank deal coming unless they had already been intently studying the global telecom sector.<\/p>\n

Japan is buying U.S. Treasuries\u2014the country recently retook its place as America\u2019s biggest creditor from China\u2014but it\u2019s hard to see much upside when the 10-year Treasury yields less than 2%.<\/p>\n

After being chronically overpriced years <\/em>into a secular bear market, Japanese blue chips are finally what I would consider cheap, or at least close to it.\u00a0 By the Financial Times\u2019 estimates, Japanese shares trade for 13.3 times earnings, about on par with the U.S. Dow Industrials.\u00a0 But Japan\u2019s largest companies tend to be heavily exposed to their slow-growth domestic market, making them a little less than exciting.<\/p>\n

It\u2019s hard to find much to like among Japanese large, liquid Japanese stocks.\u00a0 As I wrote recently<\/a>, Sony (NYSE:$<\/span>SNE<\/a>)<\/strong> has trailed Apple (Nasdaq:$<\/span>AAPL<\/a><\/strong>) as a consumer electronics company and seems to be a company without direction.\u00a0 Toyota (NYSE:$<\/span>TM<\/a>)<\/strong> and Honda (NYSE: $<\/span>HMC<\/a><\/strong>) are fine auto companies with a global reach\u2014and Honda sports an attractive dividend of 3.1 percent\u2014but both are too heavily exposed to Japan\u2019s shrinking market to be worth owning.\u00a0 The story is much the same among Japan\u2019s other large-cap titans.<\/p>\n

Perhaps the best course of action would be to simply avoid Japanese equities and focus instead American and European firms with a more global reach.<\/p>\n

Sizemore Capital has no position in any security mentioned.<\/em><\/p>\n

The post Japanese Purchase of Sprint is an Act of Desperation<\/a> appeared first on Sizemore Insights<\/a>.<\/p>\n

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