After Buffett's Investment, How Have the Valuation Metrics (P/E, P/B) of These Companies Changed? Are They Still 'Cheap'?
Valuation Changes and Current Value Analysis of Buffett's Investment in Japan's Five Major Trading Houses
Background
Warren Buffett's Berkshire Hathaway announced its investment in Japan's five major trading houses (Mitsubishi Corp, Itochu Corp, Mitsui & Co, Sumitomo Corp, and Marubeni Corp) in August 2020. The initial stake was approximately 5%, later increased to around 8-9%. These companies primarily engage in resource trading, energy, and diversified businesses. At the time of investment, their valuations were low, aligning with Buffett’s "value investing" philosophy. Post-investment, stock prices surged significantly due to market recognition, improved corporate performance, and dividend appeal, leading to changes in valuation metrics (e.g., P/E and P/B ratios). This analysis uses public market data (as of end-2023 or latest available) to assess these changes and current "value attractiveness" (i.e., whether they remain undervalued, considering valuation, dividends, and growth potential).
Analysis of Valuation Metric Changes
Comparative analysis of pre- and post-investment valuations:
- Pre-investment (Aug 2020):
P/E: 5-8x; P/B: 0.5-0.7x; High dividend yield (4-6%), reflecting Japan’s market slump and cyclical nature of trading businesses. - Post-investment changes:
Buffett’s investment drew market attention. Coupled with global economic recovery and corporate reforms (e.g., increased buybacks, governance improvements), stock prices rose 2-3x on average, lifting valuations. However, they remain relatively low vs. global peers. - Data source: Yahoo Finance, company reports (JPY-denominated; USD valuations similar).
Detailed Company Comparison (Data as of End-2023)
| Company | Pre-inv. P/E (2020) | Pre-inv. P/B (2020) | Current P/E (2023) | Current P/B (2023) | Key Drivers |
|---|---|---|---|---|---|
| Mitsubishi | ~6x | ~0.6x | ~8-10x | ~1.2x | ~200% stock rise; energy price recovery & diversified ops; P/B rebounded but below historical avg. |
| Itochu | ~5x | ~0.7x | ~7-9x | ~1.1x | Highest gain (>300%); strong consumer/textile ops; valuation up but dividend yield still high (~4%). |
| Mitsui | ~7x | ~0.5x | ~9-11x | ~1.0x | Resource trading drove performance; P/B doubled but remains low; enhanced ROE boosted investor confidence. |
| Sumitomo | ~6x | ~0.6x | ~8-10x | ~0.9x | Metal/energy sector recovery; ~150% stock rise; valuations improved but not excessive. |
| Marubeni | ~5x | ~0.5x | ~7-9x | ~1.0x | Agriculture/energy growth; ~250% gain; started from lowest valuation—current P/B near 1x. |
- Overall trend:
P/E rose from 5-7x to 7-11x; P/B increased from 0.5-0.7x to 0.9-1.2x. Changes driven by stock appreciation (not earnings decline), with ~20% avg. annualized return. Despite higher valuations, they remain attractive vs. global peers (P/E 15-20x, P/B 2-3x).
Do They Still Offer "Value Attractiveness"?
Yes, collectively they retain strong value appeal, but note stock-specific differences and market risks. Reasons:
Positive Factors
- Valuations still low: Current P/E mostly <10x, P/B ~1x—well below global averages. Benefits from overall Japanese market undervaluation (Nikkei P/E ~15x).
- High dividends & buybacks: Avg. dividend yield 4-5% (vs. US avg. 1-2%). Active share buybacks (e.g., Mitsubishi’s 2023 plan) enhance shareholder value.
- Robust fundamentals: Diversified portfolios (energy/resources/consumer) offer cyclical resilience. FY2023 profit growth driven by global trade recovery and JPY depreciation.
- Buffett effect persists: Stable holdings (no sales) and public praise for their "economic moats" and long-term value attract further investors.
- Growth potential: Japanese govt.-led corporate governance reforms (e.g., TSE requiring P/B>1 firms to improve) may further lift valuations.
Risks & Caveats
- No longer "bargain-basement": Current P/B near/exceeding 1x means some "undervaluation premium" has eroded. Global slowdown (e.g., energy price retreat) could trigger corrections.
- Macro risks: JPY volatility, geopolitics (resource dependency), and inflation may impact profits.
- Stock-specific variations: Itochu/Mitsubishi are more resilient (consumer-driven); Mitsui/Marubeni face higher cyclicality—better value but more volatile.
- Value investing lens: By Buffett’s criteria, these firms still offer a "margin of safety" (low debt, high cash flow), but investors should focus on long-term holding over short-term speculation.
Conclusion: For value investors, these trading houses remain compelling—especially for dividend income and potential capital appreciation. However, assess using latest financials and global economic trends to avoid buying at peaks.