Most Undervalued Nikkei 225

Every Nikkei 225 company is run through the base-case engine, then must clear all five rules below. The list is capped at 20 — so a strict month can show fewer.

• Undervalued — base-case intrinsic value is above the current price (positive margin of safety). Most large caps trade above their conservative base case and are screened out here.
• Valuable by the model — produced a real intrinsic value. Companies with no/negative free cash flow, with net debt exceeding firm value, or banks/insurers paying no dividend can't be valued and are dropped.
• Real cash flow — free cash flow came from a reported figure or operating cash flow minus capital expenditure. The rough OCF × 0.8 proxy is excluded because it fakes undervaluation.
• Normalised for financials — for non-bank financial companies (exchanges, asset managers, payment networks), reported free cash flow overstates owner earnings. The screen applies the same normalisation as the DCF tool — reducing reported FCF before valuation — so fair values match what you'd see entering those tickers manually.
• Plausible margin — margin of safety is 80% or less. When the model says a stock is worth far more than double its price, that usually reflects one-off-inflated or cyclically-peaked cash flow (for example, proceeds from selling cross-shareholding stakes landing in a single year), not a genuine bargain — so those are excluded.

• Static risk-free rate — fixed at ~2.8% (Japan's approximate 10-year government bond yield, a 30-year high as the Bank of Japan exits deflation-era policy). Not live — no accessible Yahoo Finance data source exists for this rate.
• Lower terminal growth assumption — 1.5% vs the tool's 2.5% default. The deflation-era convention of 0–0.5% is outdated, but Japan's demographic-constrained long-run growth still warrants a below-default cap.
• Beta floor — Yahoo Finance measures beta against the S&P 500, and historically low Japanese betas (0.5–0.7) also partly reflect deflation-era price stagnation. Beta is floored at 0.6 for Tokyo-listed stocks so the cost of equity isn't understated.
• Cross-shareholding caveat — some companies are liquidating historic keiretsu equity stakes in business partners. Sale proceeds can inflate reported cash flow in individual years; the 80% margin cap catches the worst cases, but treat unusually high margins on industrial conglomerates with extra care.