Monday, October 25, 2004

Why I bought Canon

Canon is a Japanese manufacturer of cameras, office machines, and machines for building micro-chip and LCD screens. Chances are good that you use one or more of your products every day. I have a Canon printer and scanner on my desk, I gave my wife a Canon Rebel a couple years ago and I have a pair of Canon binoculars. One of the very pleasant surprises I found by reading the financial statements is that HP sells re-branded laser printers made by Canon, which I have used in every office I've worked in.

Buying a Japanese company (through an ADR) is a bet on the yen verses the dollar. Even a good company that becomes more valuable in Tokyo could lose value when translated into dollars. A strong dollar is bad for people holding stock in foreign companies. But it is good for companies that export to the US. Canon records high profits when it makes digital cameras with cheap yen and sells them for strong dollars. Overall, I hope Canon will be a good hedge against a weakening dollar.

Japanese companies have a reputation of trying to maximize sales even if it means lower profits, but Canon is an exception. Since 1994, net profit margins have gone from 1.7% to 8.6% in large part because gross margins have increased from 38.8% to 50.3%. The company has gone from selling cheap knockoffs of German cameras to setting the standard for optical quality, which people are willing to pay a premium for.

I bought Canon at $45 in December when the dollar traded at about 105 yen.

No comments: