As a student, I bought a Sony Walkman for the Japanese language tapes I needed to listen to every day. It was not cheap and I held on to it over the years and my guess is that it is worth even more today. At that time Sony (SONY) was both a leading manufacturer and a rising entertainment behemoth that many thought would dominate the world as one of the most impressive blue-chip Japanese stocks.
Instead, Apple revolutionized the industry with its iPod, expertly combining hardware and software. Meanwhile, Sony’s effort to compete was hampered by internal politics and software snafus.
Though Sony engineers seemed to be the leaders in miniaturization, it was Apple that was able to elegantly blend features into the iPhone – launched in 2007 and developing into what amounts to a hand-held computer and multimedia player. Ever since, Sony has seemed to be left in the dust.
Sony Chief Executive Kenichiro Yoshida is working hard to burnish the Sony brand with some facts. In the fiscal year ended March 2022, Sony’s three entertainment businesses—video games, music and video content such as movies—represented more than half the company’s revenue for the first time.
These entertainment businesses accounted for 65% of operating income, which reached nearly $10 billion and enabled Sony retake its position as Japan’s second most valuable company after Toyota (TM).
Even better, Sony recently announced that it is partnering with Honda (HMC) to develop electric cars planned to hit the market in 2025, becoming the latest company to throw its hat into the ring in the growing but competitive electric vehicle (EV) market. With Honda and Sony teaming up, is it time to invest in either blue-chip Japanese stock? Let’s examine.
Sony-Honda Deal: Worth the Investment?
Japanese companies have lagged behind their American, Chinese and European competitors, preferring a more hybrid approach in developing cleaner vehicles. Now they are shifting into overdrive to make up ground.
It is sensible for Sony to team up with a traditional automaker like Honda, seeking to avoid the challenges faced by other companies like Rivian (RIVN) that have attempted to make their own vehicles from scratch. This is also why I’m thinking that Apple will do the same if it follows through with its plan to get into the EV business.
Sony and Honda said in their announcement that they planned to form a new company this year that would manufacture cars in Honda’s factories including its Ohio plants. By the way, it may surprise you to learn that Tesla and Honda dominate the Cars.com 2022 ranking of cars with the most American content.
The agreement is expected to give Sony access to Honda’s industry knowledge as well as its global network of dealerships while Honda will gain access to the technology essential to implement features like autonomous driving, and also to Sony’s wealth of entertainment products. Honda has also announced plans to make a number of other all-electric cars, including two to be made through a partnership with GM for the American market.
Both of these companies are great picks for a challenging market with Sony trading at 16 times earnings and Honda stock trading at a multiple half that with the bonus of current dividend yield 5.7%.
Diversifying into international stocks is a smart way to manage risk and boost returns. Japanese quality, a weak yen, growth markets, and a smart strategy will make the Sony-Honda combo a winner among blue-chip Japanese stocks.