What to buy in this market crash!
Revisiting names I've covered and more
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Disclaimer: I am long shares of Round1 (4680), SK Japan (7608), and Glory (6457) at the time of publishing this post.
Hey Continuous Compounders,
With Trump’s liberation day announcement, I surely got liberated from quite a bit of my capital gains.
Fortunately, I was lucky enough to have timed the market rather accurately for the second time in a row. I went to a significant amount of cash/gold prior to the liberation day announcement and was able to repurchase many of my high-conviction picks on Monday.
The last couple of days have been very volatile, but what I believe a prudent investor should do is look beyond a few days from now and think about where your stock will end up in 1-2 years (Druckenmiller).
One example is SK Japan. SK Japan predominantly supplies amusement centres like Round1 and Genda with plushies for their crane games. If international revenues are below 10%, they don’t have to report it. That is the case with SK Japan. They do sell to Round1 for their US operations, but the revenues have not exceeded 10% yet; hence, tariffs barely affect SK Japan. The stock dropped from around 791 prior to the multi-day crash to below 600. This offers a 30% return on mean reversion alone. If the outlook is that everything will be fine in 1 year, then SK Japan is a no-brainer investment.
I believe a basket of Japanese names that are mostly unaffected by tariffs and have lots of room to mean revert to be a good basket trade.
Yesterday I posted the following on my X account (follow me if you haven’t already):
I will pretend I only have time to give you an elevator pitch for each of the above stocks (except Genda):
For the full stock pitches for each of the following, visit my full Continuous Compounding directory link
Round1 (TSE-4680): 50% upside. Domestic operations are doing well, with the primary value driver being the company’s US operations. They will continue to penetrate the US market with their unique Japanese amusement offerings, which their competitors Dave & Buster’s and Bowlero cannot match.
Round1 Delicious is rather BS and more of a marketing gimmick. An amusement operator venturing into the restaurant business is not ideal. The chefs they send to the US will not be the cream of the crop from the Tabelog-partnered restaurants. You can’t create a master chef in 2 years. If they do send their top chefs, they can only open so many stores. I hope Round1 picks quality chefs to send over rather than rushing the training process to meet some rather stupid store opening goal.
If the company simply focuses on its amusement offerings and continues to open stores in the US, Canada, and beyond, I see the stock being worth easily 1200+. Tariffs on Japanese IP prizes are certainly a negative, but there is a blurred line here. The prizes are not sold to customers. The prizes are won through claw machines or ticket prize machines. Round1 either has to source cheaper prizes or make claw machines harder to win to maintain the same margins. Will the consumer notice it takes 1 or 2 more dollars to win their prize? Alternatively, they can adjust their product mix by sourcing more prizes from US manufacturers like Squishmallows, which would weaken their value prop slightly as the go-to amusement centre for Japanese-related prizes.
SK Japan (TSE-7608): Short-term upside of 30-40%. SK Japan supplies plushies, toys, and prizes with popular IP (anime, Pokemon, Jujutsu Kaisen) to amusement operators and retailers. They will continue to grow sales as Round1 continues to grow. SK Japan can grow to 1000+ yen per share if they are able to supply 20% of Round1’s prizes in the US. A very simple business with less than 10% sales exposure to US tariffs. Tourism and the growing popularity of anime IP are tailwinds for this company.
Glory (TSE-6457): Short-term upside of 20%. Glory was discovered through my research into the pachinko industry, but what makes Glory unique is that they are not dependent on the pachinko industry. Glory makes cash-handling solutions and self-service kiosks for the financial, retail, transportation, food & beverage, and amusement industries. Glory is a market leader in many product segments domestically and overseas. Glory is currently in a market penetration stage, hence lower EBIT margins of 8-9%. I expect as they fully penetrate their addressable markets and solidify their market position, the company can trade north of 4000 yen, a near double. This may take 3-6 years to come to fruition. I do not currently have a stock pitch on Glory yet, but I will be releasing a full stock pitch on this stock soon.
Haier Smart Home (XTRA-690D): Short-term upside of 15-20% with a 6% div. yield at the current 1.63 euro price per share. I think if you can get in at 1.35-1.50 euros, you'll do great on this investment. Haier continues to acquire appliance competitors. Haier is affected by the US tariffs, but not to the extent of a European luxury appliance manufactured outside of the US. Haier manufactures its appliances in the US; hence, it is primarily the imported parts that add to the price tag of the appliance. With this being said, it is difficult to say if a US competitor like Whirlpool will have a major cost advantage, as the same parts Haier sources from China, Taiwan, Japan, or elsewhere, Whirlpool likely has similar suppliers.
Good luck in the markets!
Lastly, I released a recap of my trip to the 2023 Berkshire Hathaway annual meeting, where Warren Buffett and Charlie Munger were both in attendance on my YouTube channel.
Please leave a like, comment, and subscribe!
Best,
Alan - Continuous Compounding
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