6 stocks for 2026

Jan 4 2026
Luke Sloman

Every year, the TSE has a special bell ringing ceremony on the first annual trading day called the 大発会 (dai hakkai), and while Yamaji san gives his talk, investors prepare for the year ahead (link to livestream). Despite uncertain conditions, optimism behind the Japanese equity markets seem to be high, with sell side forecasts for the nikkei suggest significant headroom for growth. Chief strategist from Nomura Asset Management Hideyuki Ishiguro sees the Nikkei 225 hitting 64,000 in 2026, and Kohei Onishi from Mitsubishi UFJ Morgan Stanley sees it ending at 62,000. This would represent a 27% and 23% upside respectively. Overall, the street is coming in at around an average forecast of 58,000 (15% upside from end of 2025), mostly on expectation that Japanese companies will continue to benefit from increased foreign inflow, Trump tariff impacts fading, collaboration with American firms, maintained levels of tourism, and increased geopolitical tension. This would mean a fourth consecutive year of gains for the index - the 3rd time this has happened since the year 2000. Some are not so sure that “Japan is back”. Masamitsu Oki from Five Star Investment Advisors, Chisato Haganuma from Mitsubishi UFJ Trust and a few others see the index falling to around the 30k mark, which would mean a c. 40% discount to where it is trading now. This seems to be on concerns of a US AI bubble popping, which they think will significantly impact the Japanese equity market. 

Regardless, as we prepare for this year - now seems to be a good time to list some companies we are looking at to outperform the index for 2026. So here is our 6 stock picks for 2026.

1. Toyota Industries
   
   TICO has gone from a company no one batted an eye at at the start of 2025, to a company everyone is keeping up to date with as we go into this new year. We won’t go into the details of the case, but Toyota Motor Corp and its CEO Akio Toyoda is attempting to privatize the firm, at a price that many claim is an unfair price, and under conditions that many claim are not protecting minority shareholders.
   
   The TOB is set to get underway in the first half of this year, but as it stands the company will be attempting to buy shares of TICO at a share price of 16,300 JPY - a 8.4% discount to the current trading price of 17,800 JPY. The current share price reflects investor sentiment that the TOB price will be increased, and is backed by activist investor Elliot management and by the Asia Corporate Governance Association (link to letter).
   
   So why does such a messy company make our list? In our opinion, once you consider the probability that the tender price will be increased, the likely new price, and the time in which this might happen, there is potential to capitalize on this trade.
   
   Starting with the probability that the tender price will be increased, we think there is around a 90% chance that the share price moves. The main reason for this, is that the resistance to going through with the TOB is now far too high. Elliot management owns 5.01% of shares, and the ACGA letter was signed by 25 investors. If Toyota decides to go the route of squeezing out investors, they will not be able to convince institutional or retail holders to sell their shares for less than the current trading price, so they will instead hope to get ⅔ of the company so they cna carry out a second step transaction, which means they will propose a reverse stock split, in which minority holders get liquidated due to holding fractional shares. This would then likely lead to a flurry of lawsuits for minority shareholder protection, which will not go in their favour, as the lawmakers will not want to deter investment into the equity markets.
   
   Next, looking at the likely new price, we expect share prices to rise to around 20,000 - 23,000 JPY. Late last year, Bloomberg reported that when considering the current value of TICOs stock holdings, the TOB price values the entire company at 16% less than just the market value of the stocks it owns (link). Simply considering share holdings and real estate land at current market prices, and then applying the 20-40% TOB premium that we have historically seen in Japan should see valuations close in on our expected range.
   
   Finally is the time frame. Toyota is expected to start the tendering process in February, but will likely not continue until they are more confident. This means the company has 2 months to make their decision on if they will walk away, or increase the share price. We think they will not walk away for 2 main reasons: reputational damage, and loss of leverage to minority shareholders if they decide to try to privatize Denso, Aisin, or other subsidiaries in the future.
   
   This leaves us with our forecast of a 12% - 30% price return in around 2 months. This is definitely a speculative pick, but event driven funds were a leading strategy last year, so it felt fitting to include…
   

2. MHI, IHI, KHI
   
   So this first pick isn’t exactly a single equity, nor is it a very original pick… but regardless, we are very bullish on Japanese defense companies. Last year, MHI returned 71%, KHI returned 47%, and IHI returned 119%. This follows the trend that defense companies around the world tend to outperform during times of global geopolitical uncertainty.
   
   Since 2026 has started, President Trump has taken control of Venezuela, North Korea has launched missiles, China and Taiwan/Japan are under tensions, and conflicts are ongoing in Eastern Europe, the Middle East and Africa. On top of this, the US is undergoing a process of reiterating global militant independence, whilst planning on solidifying critical supply chains and manufacturing. For this reason, we continue to see more upside in the Japanese defense industry. Although these companies are crowded, we see a difference between this cycle and past cycles as the current defense demand is underpinned by a multi-year budget commitment rather than short-term conflict-driven spikes, improving earnings visiblity
   
   

3. Recruit Holdings
   
   Recruit Holdings is a company that doesn’t usually make these lists, and it is one of the only companies in this list to have had negative price returns last year. RH operates the hiring platforms, and matching applications, and made headlines last year as an “AI loser”, but we think the opposite.
   
   The hiring process has changed over the years, and this can now be seen in the undergraduate job market. Last year, top financial firms accepted less than 1% of applicants for internship positions, and leading AI and tech firms hired single digits out of university. On top of this, applicant numbers have skyrocketed with the unavailability of “work from home”, as people can now apply to work in different offices, in different countries. A position that used to have 50 applicants may have 300 today, and this means tremendous stress on the hiring team. This is the problem that Recruit Holdings have said they aim to close now, and have discussed the screening process which hiring teams use to narrow down massive applicant lists. The switch that RH is making to appeal to both the hiring and hirer side will allow for both market growth and margin expansion, which we believe will grow this segment of this business. This is a business where the barrier of entry will continue to rise, since screening can be done based on private data, and know-how can be maintained. We don’t see AI as a substitute for Recruit’s platforms, but instead we think of it as a margin lever that may increase switching costs for enterprise clients
   
   

4. Anycolour
   
   Anycolour is a VTuber management firm, operating the group Nijisanji. Vtubers (virtual youtubers) are content creators who cover their true identity behind an animated character to play games, sing, perform, or simply chat on live streaming services like YouTube and Twitch. These creators also sell merchandise, and do live events and concerts which both bring in a significant portion of revenues. We see growth potential in expanding visibility, overseas expansion, and potential for further future AI integration. Most relevant to this year will be global expansion. Unlike traditional media, VTuber IP scales globally with minimal localization cost, creating unusually high operating leverage once fanbases are established. And once they are established, audiences are sticky, and difficult to replace.
   
   

5. Aeon Co
   
   Aeon stands to benefit from the constrained Japanese consumer market. In 2025, the company focused on cutting costs, implementing digital products into traditional stores for productivity, growing the TOPVALU brand, and arranging stores to be manageable by as little staff as possible.
   
   The ability for Aeon to now manage stores with as little internal expenses as possible lends nicely with the ability to offer low-cost private-label goods, and we think that there will be continued growth in 2026 due to the constrained Japanese consumer in today's inflationary macro environment. Aeon is less of a growth story, but more of a company where the macro headwinds are aligning nicely for another year of index-beating returns

6. Tokyo Electron / Disco
   
   No list for 2026 equities is complete without talking about the main AI beneficiaries. This comes at the end of our list because, not because we are any less convinced by the growth story, but more because this is a realm where we aren’t too confident speaking (so we’ll keep this short).
   
   AI companies are leading index growth around the world, and we see no reason for this to slow down. As this bull run extends, we see more and more Japanese companies further leaning into these headwinds, and there are more announced investment deals with American peers. We see potential for there to be more AI capex spillover, higher ROIC, and higher global pricing power. 

This material is provided for informational and educational purposes only and does not constitute investment advice, a recommendation, or an offer or solicitation to buy or sell any securities. The views expressed are those of the author as of the date of publication and are subject to change without notice.

All investments involve risk, including the possible loss of principal. Past performance is not indicative of future results. Forecasts, estimates, and opinions are based on assumptions believed to be reasonable at the time but are inherently uncertain and may differ materially from actual outcomes.

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