South Korea has been getting a lot of press, from the G20 meeting to its recent interest rate hike. The LG Group is one of the country's industrial behemoths, but U.S. investors probably need to play it via subsidiary LG Display (NYSE:LPL). Unless you have a broker in Korea or a U.S. broker that supports trading on the Seoul exchange, your direct exposure to LG is probably limited to this ADR of the liquid crystal display subsidiary.
For better or worse, LPL does not reflect all the business of its corporate parent: no chemicals, broad-line electronics, telecom or anything else. To get exposure to that, you are going to have to settle for an ETF or mutual fund that invests directly in Korean stocks; iShares MSCI South Korea Index ETF (NYSEARCA:EWY), for example, is about 13% invested in various LG holdings.
Cautions: South Korea has lifted its base rate by a quarter point to 2.50 percent and said further rate moves would depend on external factors. Still, the statement from central bank governor Kim Yoo-mi was not as hawkish as investors had feared. Going forward, higher rates may rob Korea's industrial conglomerates of their ability to grow.
The Fundamentals: LPL seems inexpensive with a PE value of 12.6019, well below the electronic instruments and controls industry median of 14.57. In fact, despite one of the lowest gross margins, the company's net margin is above what its peers can offer.
LPL has a debt to total capital ratio of 29.06%, in line with its industry, and liquid assets seem plentiful enough to service current liabilities in the event that operating earnings fail.
Institutional float is very thin -- only 4.67% of all outstanding shares -- but short interest is 2%.
The Technicals: Price action has clearly changed direction since mid-October and is starting to make lower highs and lower lows -- a bearish trend, with two downward gaps on October 27 and 29. Yesterday’s close pushed the price below the 200-day moving average, so if LPL cannot find its footing at $16.25 support, shares could float down to a $14 handle at the next support level.
It is key to note that volume has been tapering off as the price moves down. There seems to be some new interest in the Apr 2011 PUTS at the $10 and $12.50 strikes. Keep in mind that options activity in LPL is very limited.
Bottom Line: LPL was one of two LCD manufacturers approved to build a plant in China this month. With reports surfacing that LCD TV sales are slowing, it will be interesting to see how the upcoming holiday season shapes up. Best Buy (NYSE:BBY) reports December 14 and should give clarity on the U.S. consumer appetite for electronics and big screen TVs.
In any event, unease in the global markets means LPL is not necessarily a good short at this point. If a short position was taken prior to the pullback, caution is now required to see whether price will hold support and trade above the 200 day average.
Disclosure: No positions