RIDING THE JAPANESE BULL

This week’s Global Bull Market Alert pick — Mitsubishi UFJ (MTU) — is a terrific combination of one of my favorite top-down themes — Japan — with one of my favorite sectors — banking. We’ve already traded MTU for a profit late last year, but the recent pullback in the stock offers us another bite at the apple, and at a price very close to what we bought it for back in October.

Lifted by a rare combination of both consumer spending and corporate investment, Japan’s economy grew 3% in the fiscal year through March. That makes four years of gains in a row. And the news out of Japan keeps getting better: Machinery orders rose by the fastest rate in almost three years in April, and bank lending increased for a fourth straight month in May. Companies are now stepping up to the plate, increasing capital expenditure and hiring. Not since 1990 had corporate spending grown at the rate it did in Q1 of this year. Indeed, if Japan’s expansion continues through November, it will become the longest since World War II.

The banking sector is a great way to play this upturn as its performance has been buoyed by both Japan’s general economic recovery as well as a healthy dose of restructuring. Japan’s "Big Three" — Mitsubishi UFJ, Mizuho, and Sumitomo Mitsui Financial Group — are all newbies to the Japanese banking scene, formed in recent years through mergers. All three have reported very strong results. After writing off non-performing loans that piled up after the stock and real estate price bubble burst in the early 1990s, the banking sector is leading the way in the Japanese recovery.

MTU is the giant among the Japanese "big three." Already the world’s largest bank by assets, it recently leapt from #82 to #18 on the FT Global 500 list of top global companies. And it keeps going from strength to strength: On May 22, it announced that its net profit skyrocketed to 1.18 trillion yen ($10.57 billion) — a breathtaking recovery from the combined 216.1 billion yen in losses suffered jointly last year by Mitsubishi Tokyo Financial Group and UFJ Holdings, the banks that merged to form MTU last year. And non-performing loans fell 1.26% from the two groups’ total last year.

MTU’s results beat expectations on all fronts. Unusually, MTU is also enjoying balanced growth in its retail banking, corporate banking and asset-management businesses. As a final sign of its full recovery, MTU has just paid back the last of the public finds its predecessors had received in the 1990s.

So buy Mitsubishi UFJ (MTU) at market today, and place your stop at $10.30. For a potentially bigger upside, buy the November $12.50 call options. (MTUKV.X).

PORTFOLIO UPDATE

Our holding Nokia (NOK) has announced that it will combine its mobile-network operations with Siemens’ network to create a joint venture with annual revenue of about $20 billion. This is a savvy move on Nokia’s part, and it sent the company’s shares up 3% in European trading today.