by Jeff Reeves | October 27, 2012 5:14 am
Full disclosure: I am long Apple (NASDAQ:AAPL) and I’m sticking with the stock, even though supply concerns and an earnings slowdown have weighed on shares.
But I’m also always looking for the next big thing, and right now Samsung is an intriguing bet in the consumer electronics space.
The only problem is actually buying this stock. It trades in Korea and London … but in the U.S. the only direct exposure is the pink sheets via Samsung Electronics (PINK:SSNLF) that trades for a staggering $1,250. Even more troubling: There are days the company doesn’t trade a single share — with average volume around 20 shares or so per session!
Thankfully, there are a few workarounds. But for starters, let’s discuss why anyone would want to buy Samsung in the first place.
Samsung earnings just hit a new record with roughly $6 billion in net profit for its most recent quarter ending Sept. 30 — up 91% from the previous year’s numbers and handily topping forecasts. Margins were robust on mobile devices like its Galaxy tablet and smartphone line, plus it has worked out the kinks in a troublesome TV and computer screen business. Samsung also is now the third-largest mobile phone manufacturer in the world, moving some 56.3 million handsets from July through September.
The company has a market cap of $178 billion, which would make it the No. 5 tech stock on Wall Street were it listed on a major U.S. exchange — behind Apple, Google (NASDAQ:GOOG), Microsoft (NASDAQ:MSFT) and IBM (NYSE:IBM), and in front of Oracle (NASDAQ:ORCL) and Amazon (NASDAQ:AMZN).
It also has some powerful consumer appeal, with existing products building the company’s brand and newer products like its $249 Chromebook building nice buzz ahead of the holidays.
There’s a lot to like here … but again, how do you get into Samsung stock?
I would steer clear of the pink sheet-listed shares because that kind of illiquid investment is just crazy. What happens if you want to sell on a day when literally nobody is placing an order to buy? Even if you’re smart enough to avoid placing a market order, there still is going to be a mess on the pricing front. And God forbid you ever need to sell quickly and get stuck in this situation.
As a result, I’d recommend ETFs with major Samsung holdings. The massive market capitalization of this company makes it an overweight holding in cap-weighted indices — much in the way that Apple can be a huge chunk of domestic tech ETFs as a result.
The three big players in Samsung right now are:
iShares MSCI South Korea Index Fund (NYSE:EWY): This iShares fund is 22.1% weighted in Samsung Electronics right now. There’s also a 5.9% stake in Hyundai — another Korean stock that is logistically challenging for investors to buy, if you’re interested in that, too. Just remember that, as the name implies, this fund is focused largely on South Korea. Any geopolitical unrest in the region or localized economic turmoil could have a significant impact on your holdings, even if Samsung is looking decent. This South Korean ETF is up just shy of 10% year-to-date in 2012.
The iShares MSCI All Country Asia Information Technology Index Fund (NASDAQ:AAIT) has 18.6% exposure to Samsung, and is a good alternative if you’re prefer to play the sector instead of the region. Top holdings after Samsung include big-name tech stocks like Taiwan Semiconductor (NYSE:TSM) at almost 10% and Canon (NYSE:CAJ) at 5.3%.
Last but not least, the iShares S&P Asia 50 Index Fund (NYSE:AIA) is 13.4% invested in Samsung, making it the No. 1 holding here, too. Next in line are state-run banking giant China Construction Bank at 5.6% and telecom China Mobile (NYSE:CHL) at 5.4%.
Various other funds have exposure to Samsung under 10%, but these could be your best way to own the company — even if they aren’t a pure play on Samsung itself.
Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at firstname.lastname@example.org or follow him on Twitter via @JeffReevesIP. As of this writing, he owned a long position in Apple but no other stocks named here.
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