[BARRON'S] Samsung: Why the Stock Could Soar

October 16, 2014

samsung_logo_th150(0)-s[BARRON'S] Samsung Electronics could be the world’s cheapest mega-cap stock. Just don’t expect it to stay that way.

The South Korean maker of cellphones, tablets, memory chips, and big-screen TVs trades for eight times estimated 2014 earnings, and just five times projected profit excluding its massive stash of net cash and investments, which totaled $60 billion at the end of the second quarter.

Then again, Samsung itself is a colossus, with $200 billion in expected annual revenue—more than enough to qualify as the largest technology company in the world. It boasts a market value of $150 billion, and accounts for 15% of Korea’s Kospi index. It’s also the biggest company in key developing-country equity indexes.

Lately, Samsung is very much out of favor with investors, due to plunging profit in its largest business, mobile phones. That has led to fears the company could become the next major casualty in a brutal market that already has claimed former heavyweights Nokia and Motorola, and dashed the fortunes of Canada’s BlackBerry.

Viewed differently, however, Samsung looks more like the Apple of a year ago. Apple’s shares briefly fell below $60 last year, and traded for about 10 times future earnings, or 6.5 times, excluding cash. Carl Icahn and other shrewd buyers loaded up on the stock, which has rallied 70% since, to $101. Samsung’s upside might not be quite as large, but some bulls think the shares could gain 50%.