Value investing has been around for almost eighty years, but it's a useful tool for even the newest emerging markets. Take Woori Finance (WF), a South Korean bank headquartered in Seoul, which is a case study in value investing. Wikipedia attributes value investing to the ideas of Ben Graham and David Dodd, two prominent economists of the 1920s. It generally means buying stocks that fundamental analysis reveals to be underpriced.
Value investors look for companies that trade at discounts to book value, with high dividend yields, low price-to-earnings multiples, or low price-to-book ratios.
Woori trades at a price-to-earnings ratio of 4.52. The price-to-earnings ratio for Wells Fargo (WFC), a well-run US bank with Warren Buffett a major investor, is more than twice as high.
Woori sells at a price-to-book ratio of 0.53. That means it sells for about fifty cents on the dollar. In classic value investing, Benjamin Graham sought out companies selling for about two thirds of the asset, or book value.
Compounding the value investing appeal of Woori is its price-to-sales ratio of 0.64. JP Morgan, (JPM), considered to be another well-managed bank, sells at a price-to-sales ratio of 2.12.
Woori has bullish growth indicators to go with its value investing appeal. The price-to-earnings growth ratio is 0.75. A price-to-earnings growth ratio under 1 is very positive.
Now trading around $30.40 a share, the mean analyst target price for Woori over the next year is $43. The Government of South Korea is selling its 57% stake in Woori, which, along with the banking sector economy, is depressing the stock.
This is not a market climate to be shilling a financial firm as according to The Wall Street Journal, Moody's is threatening a mass downgrade of US money center banks. This presents emerging market buyers with an opportunity to acquire Woori shares at a discount on not only a value investing basis, but also for its future growth prospects -- entities usually perform better when state control is relinquished.