Samsung's Stock Is on a Roll

And it's dirt cheap.

May 19, 2014 at 5:06PM

Shares of Samsung Electronics (NASDAQOTH:SSNLF) have been on an absolute roll since late March. Shareholders in the South Korean giant have seen the share price appreciate by a healthy 16%, with momentum apparently fueled by the apparent success of its recent flagship smartphone, the Samsung Galaxy S5. The interesting thing here is that despite the long-term fears of smartphone and tablet commoditization (mobile devices account for about 75% of the company's operating profit), the company's shares seem to have priced this in.

Samsung is dirt cheap and downside seems limited
Shares of Samsung Electronics trade at just 7.32 times earnings. To put this into perspective, rival Apple (NASDAQ:AAPL) trades at 14.45 times earnings. Now, of course, Apple's got a stickier moat and stronger brand than Samsung does, but Samsung Electronics as a whole is quite a bit more diversified than Apple is. Samsung is the world's leading vendor in DRAM and seems to be very aggressively pursuing the semiconductor logic foundry market dominated by Taiwan Semiconductor (NYSE:TSM).

Will Samsung's smartphone margins stay high forever? Probably not. Will the growth in mobile devices continue to be as robust as it has been over the last several years? No, again, probably not. However, even if Samsung's mobile revenue stagnate, the odds are very good that it will eventually grow to be the No. 2 semiconductor logic foundry after TSMC and that the DRAM market will continue to boom for quite some time.

Even if Samsung's operating profit were cut in half, it still wouldn't be particularly expensive relative to many of its peers in either the consumer electronics space (many of whom are losing money) or in the semiconductor market (TSMC trades for 17.56 times earnings and commands a $107 billion market capitalization). The shares really are cheap, and the downside -- for those who can actually get a hold of the shares (there is no ADR for U.S. investors to purchase) -- seems limited.

How about the Apple threat?
The big "threat" to Samsung's big profit center is the upcoming "large" iPhone from Apple as well as the bevy of competing Android devices from the likes of LG, HTC, and Motorola. If the iPhone 6 debuts later this year and starts wreaking havoc on Galaxy S and Galaxy Note market share, then the stock could begin to stagnate or decline.

Further, while the Galaxy S5 is putting up great sales numbers so far, there is risk that this popularity could be fleeting. Again, if Samsung were a highflier commanding a premium multiple, then shareholders should be nervous, but at about seven times earnings, it all seems baked in and the risk really does seem to be to the upside. The better way, it seems, to play a Samsung Galaxy S5 or Note 4 "flop" in the face of Apple's iPhone 6 would be to go long Apple rather than short Samsung.

Foolish bottom line
At the end of the day, Samsung is an incredibly powerful company that has benefited greatly from its aggressive efforts to capture the mobile revolution. While the margins and the profitability may not last forever, the stock is just so cheap that it seems even the worst case scenario is priced in. For now, Samsung's shares are likely to continue to trend up until we get a data-point suggesting that Galaxy S5 sales aren't all they're cracked up to be, which may or may not be the case.

The biggest thing to come out of Silicon Valley in years
If you thought the iPod, the iPhone, and the iPad were amazing, just wait until you see this. One hundred of Apple's top engineers are busy building one in a secret lab. And an ABI Research report predicts 485 million of them could be sold over the next decade. But you can invest in it right now, for just a fraction of the price of Apple stock. Click here to get the full story in this eye-opening new report.

Ashraf Eassa has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers