Bargain Hunting in Korea: LG Display Co Ltd. (ADR) (LPL), POSCO (ADR) (PKX), SK Telecom Co., Ltd. (ADR) (SKM)

Over the past few days I wrote two articles: Bargain Hunting in Brazil and Bargain Hunting in France.  After reflecting on those pieces, I decided that I was going to go bargain hunting in a country that would provide an interesting contrast with France. I chose South Korea mainly because it has a nice story and a healthy economy.

History

Fifty years ago, South Korea’s per capita GDP was comparable with levels in the poorest countries in the world. However, over the past four decades South Korea has demonstrated incredible growth and global integration.  In 2004, South Korea became one of the few trillion dollar economies. That means that South Korea is currently one of the world’s 15 largest economies. The irony is that governmental intervention is what made that possible.

LG Display Co Ltd. (ADR) (NYSE:LPL)The South Korean government imposed restrictions on credit and imports, promoted the import of raw materials and technologies at the expense of consumer goods, and encouraged savings over consumption. Plus South Korea learned a great deal during the Asian financial crisis. As a result, South Korea became more open to foreign investment and imports. Today the economic environment (infrastructure, regulatory institutions, education, and culture) in South Korea is among the most favorable in the world — after all, interest rates are low, exports are growing, and the country is developing its domestic-oriented sectors such as services.

Yet South Korea still has one major issue: its economy is very reliant on exports.

Then again, that just means that South Korea will benefit when the global economy picks up.

What’s more, South Korea’s inflation rate is hovering around 2%, its unemployment rate is around 3.5%, and its per capita GDP has increased from around $30,800 to $32,400 over the past two years.

For those and many other reasons, South Korea looks pretty good.

What companies should you consider?

I started out with some of the usual suspects such as Samsung, Korea Electric Power, Kia, Hyundai, and a few others. Then I ruled those companies out, and instead chose to further research the following: LG Display Co Ltd. (ADR) (NYSE:LPL), POSCO (ADR) (NYSE:PKX), SK Telecom Co., Ltd. (NYSE:SKM), and Woori Finance Holdings Co., Ltd. (ADR) (NYSE:WF).

LG Display

LG Display manufactures thin-film transistor liquid crystal display (TFT-LCD) panels.  Its products are used in televisions (TVs), laptop computers, desktop monitors, mobile phones, industrial devices, automobile navigation systems, aircraft instrumentation, medical devices and others. The company also produces organic light-emitting diode (OLEDs) and monitors.  Its products are primarily distributed to developed overseas countries such as the United States, Germany, Japan, and Singapore.

LG Display was once a very profitable company.  In 2004, for example, LG Display Co Ltd. (ADR) (NYSE:LPL) earned a whopping $5.11 per share.  In addition, from 2007 to 2010 this company’s earnings were fairly stable given that they ranged from $2.28 and $3.39 over that time period.  Furthermore, this company has grown revenues at 18%, on average, over the past 5 years.  Although the company is currently struggling to make a profit, many analysts believe that this company will become highly profitable once again.  All in all, this company is a fairly high risk, high return company.

Posco

Posco manufactures steel products. Its products include hot rolled steels, steel plates, wire rods, cold rolled steels, galvanized steels, electrical galvanized steels, stainless steels and others. POSCO (ADR) (NYSE:PKX)’s products are used in ships, automobiles, consumer electronics, machine structures, general structures and others.  In addition to importing and exporting steel products and raw materials, the company also designs and constructs commercial and residential buildings.