Contrarian Appleseed Fund Picks 4 Japanese Stocks on Eve of Earthquake Anniversary

As for the notorious Yakuza, the Japanese criminal group whose godfather was banned last Thursday by the Treasury from entering U.S. markets, Strauss said the group doesn't impact his investments.

"It's not part of our stock selection process. I don't even think about it," he said. "I would be as fearful about the Yakuza infiltrating Japanese business as I would the Mafia infiltrating U.S. business."

Even before the earthquake, Japanese stocks were in a two-decade bear market and trading at compelling valuations, Strauss noted last year in the Chicago-based Appleseed-Fund's semi-annual report. For example, he wrote, the benchmark Nikkei index of the Tokyo Stock Exchange was trading at an attractive price to book value of 1.0x.

"The Japanese economy, which was not especially strong prior to this sequence of unfortunate events, has since weakened significantly and undoubtedly is in recession," Strauss wrote. "The good news is that the Japanese people are extremely resilient and resourceful, having demonstrated time and again that they can bear the unbearable."

For contrarians, that means some intriguing investment opportunities. Strauss includes the following four Japanese companies in his portfolio of stocks for the Appleseed Fund. These four stocks comprise roughly 13% of the portfolio:

1. Shimano (7309-JP)–"Think of them as the Intel of bicycle component companies," Strauss said. "They dominate their market share of bicycles that cost more than $150." The vast majority, 88%, of sales is outside Japan. Positive investment characteristics include a recognized brand, strong balance sheet, top-notch engineering squad and no earthquake exposure.
2. Mabuchi Motor (6592-JP)–This company manufactures small DC motors used in products such as digital cameras. Free cash flow positive for the last 10 years, Mabuchi has a 50% market share globally and a current 2.7% dividend yield.
3. Rohm (6593-JP)–With a moderately attractive growth profile, Rohm is a diversified semiconductor producer. The company got hurt by the earthquake and flooding, yet the stock trades at 0.7 to book. "It's very cheap," Strauss said.
4. Dr. Ci: Labo (4924-JP)–A high-end skin care manufacturer, Dr. Ci: Labo is an "extremely" profitable and growing medical skin care company whose founder and owner is a dermatologist, according to Strauss. The domestically oriented company has ROE of 20%.