Samsung Electronics (GM:SSNLF) is one of the most successful companies in modern history. Ever since the company adopted Google's (GOOG) Android operating system, it's been eating lunches of many companies including Nokia (NOK), Sony Ericsson (SNE), HTC, LG and Motorola and it poses the only serious challenge to the kingdom of Apple (AAPL). Despite its market value of $212 billion, Samsung has a lot of room for growth which the company has been taking advantage of.
Why Invest in Samsung?
Just a few days ago, Samsung Electronics announced its expected quarterly earnings. The company expects to earn $7.7 billion in the first quarter of 2013, which represents a growth rate of 53%. Because Samsung sells more than 30 smart phone models, it is able to address consumers from a wide range of price levels. In a quarter when Apple is expected to report a volume drop of 30%, Samsung was able to see a volume increase of 10%.
Despite posting impressive figures, Samsung is pretty cheap. In fact, the company's price is comparable to Apple's price. Samsung's current price to earnings ratio if 9.9 and the company's forward P/E ratio is somewhere around 8 depending on which analyst one listens to. Excluding Samsung's cash reserves of $15 billion, the number drops to 7. This is pretty comparable to Apple's forward P/E ratio excluding cash.
Samsung is a very unique company in the world of electronics because the company is able to make money in sectors where other technology giants are struggling hard. For example, companies like Sony and Panasonic haven't made any profit in TVs in years whereas Samsung continues to make money from TVs. Furthermore, Samsung is pretty much the only company that claims large profits in the Android operating system whereas most other Android phone makers are barely breaking even, not to mention the Symbian, Windows and BlackBerry (BBRY) phone makers. Moreover, in the tablet sector, Samsung is the only company apart from Apple that makes money on those things. Many other companies that are currently selling their own tablets (e.g., Amazon, Microsoft and Barnes and Noble) are yet to report a profit on those devices.
Now that I mentioned why Samsung is a great investment, it is time to go back to the original question in the title. How can an American investor take advantage of such a great company? While the question is tough, there are possibly multiple answers to the question.
In the US, Samsung doesn't really trade in any of the markets which is bad news for the American investors. There is a listing in pink sheets with a ticket of SSNLF.PK but these shares are tough to trade. At the moment, each of these shares are being sold for $1,385 and there is nearly no liquidity here. According to the Google Finance, the stock had a volume of 29 in the last trading day and it had an average volume of 73 in the last 10 trading days. Those who buy these shares should be ready to handle low volume and low liquidity, which means that you might not be able to sell your shares easily if you decided to offload them. Furthermore, you wouldn't be able to write covered calls on your shares, which may diminish your returns; however, you would be eligible for dividend payments if and when they occur. Because the volume is low, there might be a wide range between asking price and bidding price at any given time, which means it is unlikely to be able to buy or sell shares at the market price.
The ETF of South Korea
iShares has an index fund for South Korea (EWY) where Samsung is highly represented. As of the writing of this article, 22% of the ETF's weight was represented by Samsung Electronics. This is a good way to gain exposure to the company. The ETF's expense ratio is 0.59% which is not very expensive. Besides, the dividend yield of the ETF pretty much covers the expense ratio. The ETF has an average volume of 2.21 million, which guarantees liquidity for sellers and being able to buy at the market price for the sellers. The ETF also allows for the owners to write covered calls, even though it only allows the owners to write calls that expire at the end of the year (i.e., January 18, 2014) for now. The ETF's tracking error is around 1%.
In the last 52 weeks, the ETF traded between a range of $50.93 and $65.00 and it currently trades for $55.77. Since the beginning of the year, the ETF's share price went down by nearly 15%, and the latest crisis between South Korea and North Korea definitely played a role in this. Currently, a lot of people fear that a possible war between the two countries might damage South Korea's economy deeply. Perhaps, investors can buy companies like Lockheed Martin (LMT), Boeing (BA) or General Dynamics (GD) as insurance in case a war breaks out between the two countries. South Korean military is a loyal customer of these companies which would see increased demand in the case of war (which hopefully won't happen). Of course, a disruption of Samsung's supply chain would be very bullish for companies like Apple and Nokia that are under tremendous pressure from Samsung.
I am surprised that there isn't an ETF of Samsung in the American market. If there was an ETF that can just track the share price of Samsung close enough, there would be a lot of demand for this, because there are a lot of Americans who would want to buy this company. After all, many American analysts constantly talk about how Samsung is "kicking Apple's butt" which I don't necessarily agree with. American investors wouldn't mind having a one-company ETF if the company sees high demand and isn't normally available for trading in the US market.
Other ETF Alternatives
There are also other alternatives that carry Samsung as a part of their portfolio. Some of these alternatives are MSCI All Country Asia Information Technology Index Fund (AAIT), S&P Asia 50 (AIA) and SPDR S&P International Technology Sector ETF (IPK). Each ETF will allocate a different weight for Samsung shares, even though the number will usually range between 10-20%. Investors that want to buy one of those ETFs in order to gain exposure to Samsung should study the contents of each ETF to make sure that they want to own the other companies that are represented in these ETFs as well.
On its investor relations web page, Samsung explains how people from different countries can invest in its shares. Unfortunately, the web page doesn't talk much about the American investors except for saying that "Individuals are prohibited from trading on GDR in accordance with Rule 144A of the US Securities Exchange Act." The company makes no mention of a possibility of listing its shares in one of American markets such as the NYSE or Nasdaq.
Alternatively, American investors can invest in some of Samsung's suppliers, such as Qualcomm (QCOM), which provide chips for many of Samsung's products including the company's highly popular Galaxy S series.
It is unfortunate for American investors that Samsung doesn't trade in one of American exchanges; however, there are more than one ways to invest in this company's success. Your investment method should depend on your risk aversion, timeline and expectations. For companies like Samsung, the question is not whether to invest or not, but rather, how to invest in it.