Alasdair Mundy, manager of the Investec Cautious Managed Fund (GB0031074817), says Japan Airlines (9201: JP) is a good example of a company with cheap valuation and potential upside.
"Equities have in general been more expensive during other periods than at present, but even during the most expensive periods there were some cheap stocks," says Mr Mundy. "But now you can't find cheap stocks and I am more concerned about valuations than I was in 1999.
"However, I do find Japan more exciting. Although it has been on fire for the past 12 months, it is one market where you can still find cheap valuations and potential upside. Japan Airlines, which we bought around six months ago, is a very good example of this, though the decision to invest in it was very stock-specific, and not a play on Japan or airlines.
"This company had gone into bankruptcy, but after this they started running the company properly. They cut costs after coming out of the bankruptcy and implemented tighter operating standards.
"Japan Airlines was also cheaper than its rivals. Because it went into bankruptcy, it gets missed from a lot of investors' screening processes - and we love stuff computers don't pick up."
Japan Airlines is listed on the Tokyo Stock Exchange and reported in April that it is maintaining measures to improve cost efficiency. In fiscal year 2012, it achieved a cost efficiency improvement of ¥10bn (£63.28m) against its medium-term management plan target of ¥50bn. The company stated: "We will do our utmost to build a cost structure that is unshakeable and resilient to any changes in the external environment such as fluctuations in exchange rates."
Japan Airlines also aims to achieve stable revenues and pay dividends to shareholders.
Japan Airlines accounted for 1.4 per cent of Investec Cautious Managed Fund's assets at the end of August.
Also see why Tokyo 2020 Olympics should be positive for the Japanese economy
