Cheaper valuations for Warren Buffett's favorite Japanese companies could give him another chance to buy more shares.

The American billionaire investor lost about 980 billion yen ($6.7 billion) in the value of his shares there in the latest market crash through Monday, but the losses narrowed to about 550 billion yen by the market's close on Wednesday as Japanese stocks recovered.

“It’s a good deal if he can buy his preferred stock at a cheaper price,” said Mineo Peto, CEO of Peto Financial Services, who has attended shareholder meetings for Buffett’s Berkshire Hathaway in Omaha, Nebraska, since 2014.

Buffett's Berkshire Hathaway owns an average of 8.2 percent in each of Marubeni Corp., Itochu Corp., Sumitomo Corp., Mitsui & Co. and Mitsubishi Corp., according to data compiled by Bloomberg and reviewed by Sky News Arabia.

During the recent mass panic, shares of Marubeni and Mitsui & Co. fell the most, by 31 percent. Trading companies fell sharply on concerns that a strong yen could cut their overseas revenues.

Marubeni and Mitsui’s price-to-earnings ratios, known as P/E multiples, fell to about 7.5 and 9.1, respectively, as of Wednesday, roughly levels seen during April-June of last year, when Buffett increased his holdings.

The P/E ratio is one of the most important financial indicators that investors use to evaluate stock prices and securities companies. It is a simple ratio calculated by dividing a company's stock price by its earnings per share over a specific period of time, usually the last fiscal year.

Simply put, the P/E ratio answers the question: How many times a company's earnings do I have to pay to buy one share of it?

  • A low P/E may indicate that the company is cheap, or that investors are concerned about its future.
  • A high P/E may indicate that the company is expensive, or that investors expect strong growth in the future.

“Buffett has been successful in value investing so far and may see the current valuation of Japanese stocks as a new buying opportunity,” said Hiroshi Namioka, chief strategist at T&D Asset Management in Tokyo.

If Berkshire decides to add more stocks to its holdings, it has cash on hand that hit a record $276.9 billion in the second quarter after selling shares in Apple.

The Omaha fortune teller first disclosed his stakes in Japanese companies in 2020, indicating that Berkshire would not acquire more than 9.9 percent of the companies’ shares unless it received specific approval from their boards. The investment firm’s reported earnings from the five announced holdings came to about $8 billion in February.

Buffett's endorsement of Japanese companies has helped draw more global attention to the Tokyo Stock Exchange, which hit a record high in July.

Some have speculated that he could turn his attention to Japanese insurance companies and banks, but Mineo Beto, CEO of Beto Financial Services, believes the billionaire will remain focused on trading companies.

He really likes trading companies because they're similar to Berkshire in that they're conglomerates in a variety of businesses. I can't see him selling his stakes at this point, Peto said.