By Nicholas Jasinski
The U.S. is blessed with the world's most dynamic economy, companies, and stock exchanges. Firms from across the globe choose to list in New York for better access to capital and a broader investor base, or they add an American depositary receipt that gives more investors access.
Not all of them, though. A few of the world's largest and most important companies have no U.S. stock market presence at all, making it difficult for U.S. investors to participate -- notably Samsung Electronics, Saudi Aramco, and Kweichow Moutai.
Investing in their shares requires jumping through extra hoops such as switching brokers, opening foreign accounts, and paying higher commissions, or owning them indirectly through a fund. It won't be worth the trouble for everyone, but there's value out there. Some investors may even appreciate the adventure.
Samsung Electronics
Samsung is a household name, but not for its largest business: memory chips. The South Korean electronics conglomerate has the leading global market share in both DRAM and NAND memory -- cyclical products subject to sharp boom-and-bust cycles that result in big swings in profitability for manufacturers. It's a concentrated industry, with Samsung, SK Hynix, and Micron Technology controlling the vast majority of sales.
Samsung's other segments include the world's No. 2 semiconductor foundry, after Taiwan Semiconductor Manufacturing; manufacturing of displays, mobile processors, cameras, and other electronics components; and a consumer electronics business featuring smartphones and appliances. The company has a market value of about $328 billion, of which some $100 billion is in cash and equity stakes in other firms.
The bullish thesis on Samsung is centered around a turn in the memory cycle, says David Samra, portfolio manager of the Artisan International Value fund, which counts Samsung as its largest holding. The market is in the first or second inning of an upturn, with improving volumes and pricing.
Unlike rivals SK Hynix and Micron, Samsung's other businesses provide ample cash flow even during memory industry downturns, allowing it to continue to invest in ultraexpensive equipment and manufacturing facilities. "Samsung's two main competitors can become unprofitable when the memory market is weak, and they don't really have the money to add capacity," Samra says. "Samsung is now in a great position to gain market share as the cycle rebounds."
Analysts expect Samsung's earnings per share to more than double in 2024, on a 17% rise in revenue.
There's no perfect comparison for Samsung, whose stock trades for around 16 times expected earnings over the coming year. But it's inexpensive relative to peers for each of its businesses: Micron stock goes for 30 times expected earnings, Apple for 27 times, TSMC for 20 times, and Sony Group for 16 times. Samsung shares could double as earnings rise and the multiple expands.
Samsung stock isn't easy to buy, but the potential upside makes it worth the effort. Forget the iShares MSCI South Korea exchange-traded fund, which has some 22% of its assets in Samsung stock but also a large stake in SK Hynix, making it a poor way to bet on Samsung's market share gains. Scratch the London-listed global depositary receipt, which U.S. investors are prohibited from owning. No major U.S. broker offers trading directly on Busan's Korea Exchange, though that could be coming soon. What's left? American investors can open an account at a local Korean online broker to own the stock. A list of approved brokers is available on the Korea Financial Investment Association website.
Kweichow Moutai
Most Americans haven't tried baijiu, but it's the reason to invest in Kweichow Moutai, the world's largest producer of the clear liquor distilled from fermented sorghum that is popular in China.
That's enough to make Kweichow, which sports a market capitalization of $292 billion, the second-most valuable company in China after Tencent Holdings. It's more than three times as big as global liquor giant Diageo, whose brands include Johnnie Walker, Tanqueray, and Don Julio, and even dwarfs more familiar names such as Alibaba Group Holding and Baidu.
The company's best-selling Moutai Flying Fairy variety comes in distinctive bottles with a white stripe across a red label and boasts an alcohol content of 53%. "I think if we drink enough Moutai, we can solve anything," U.S. Secretary of State Henry Kissinger reportedly told Chinese leader Deng Xiaoping at a 1974 dinner.
The liquor is hardly known outside of China, where 97% of Kweichow Moutai's sales came from in 2023. Its long history and legal protections -- it can only be produced in a specific part of the Chinese province of Guizhou, similar to France's Champagne -- make Moutai a decidedly upmarket but still accessible liquor brand, costing $200 or more for a half-liter bottle. The tailwind of a growing Chinese middle class has driven sales higher each year for more than two decades.
And there's more growth expected. Analysts' consensus forecast calls for mid-to-high-teens earnings and revenue increases annually for the foreseeable future -- two or three times faster than Diageo. The Chinese company's net income margin is consistently around 50%, versus the low 20s for Diageo. Yet Kweichow Moutai stock trades for about 23 times expected earnings over the coming year, a slim premium to Diageo's 19 times.
For U.S. investors willing to contend with the political risk of investing in China, trading in mainland-listed A-shares became possible starting in 2014 via the Shanghai-Hong Kong Stock Connect program, but not all U.S. brokers take part. Interactive Brokers is one of the few that does, for a commission of 0.08% of the trade value. If you're with Fidelity, Schwab, or E*Trade, you're out of luck.
Saudi Aramco
Saudi Arabian Oil Co., better known as Saudi Aramco, is worth $2 trillion, behind only Microsoft and Apple in global market-value rankings. It's an absolute giant: Net income is estimated to have exceeded $122 billion in 2023, on revenue of more than $500 billion.
Saudi Aramco's cost of oil production is some 75% lower than many of its competitors, and its proven reserves should remain productive for decades. That combination makes it the oil asset with the longest viable future ahead of it, relevant for investors concerned about declining demand for oil in a green-energy future. Cash flow and dividend payments should continue for longer, too.
Shares trade for a premium 17 times expected earnings over the coming year, versus 12 times for U.S. majors Exxon Mobil and Chevron, eight times for Shell, and five times for Petrobras.
Saudi Aramco completed the largest-ever initial public offering in late 2019, listing about 1.5% of the company to raise $29 billion. It's still a tiny float on the relatively illiquid Tadawul exchange -- the kingdom owns more than 94% of the company.
Despite its heft, Saudi Aramco is nearly impossible for nonresidents to buy. Foreign investors on the main Tadawul exchange need to demonstrate a minimum of around $500 million in assets to open an investment account, according to rules set by the kingdom's financial regulator.
For less-well-off U.S. investors, the only option is to buy a mutual fund or exchange-traded fund that is a big holder of the stock. The iShares MSCI Saudi Arabia ETF has around 7% of its weight in Saudi Aramco stock. Its other holdings include a variety of Saudi banks, materials, and other firms.
Aramco is reportedly considering a secondary offering on the Tadawul that could be the largest share sale of 2024. No word yet on a U.S. or other international listing.
Write to Nicholas Jasinski at nicholas.jasinski@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
February 21, 2024 02:00 ET (07:00 GMT)
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