Value Investors Should Visit Korea

06/10/2014 10:00 am EST

Focus: GLOBAL

Jack Adamo

Editor, Jack Adamo's Insiders Plus

It's not often you can buy a security that has tripled in value in the last ten years for a P/E of less than 10, but that's the case with my latest recommendation, which is a play on South Korea, explains Jack Adamo, editor of Insiders Plus.

For some reason, Korean shares are always relatively cheap. Even Warren Buffett commented on it a few years ago.

Lately, the country has faced some headwinds due to Japan turning its own currency into confetti to make its exports cheaper, yet Korean companies have managed to hold their own.

My latest recommendation is the iShares MSCI South Korea Capped ETF (EWY). Samsung electronics constitutes 21% of EWY.

Normally, I wouldn't like such a heavy weighting in one holding, but I'd be happy to own Samsung alone. However, the ADRs trade so thinly, they've changed price only twice in the last two months. More importantly, they trade for less than seven-times earnings.

Another top holding in the fund is Hyundai, a stock which sells for six-times earnings, despite having risen 130% since it began trading in the US less than three-and-a-half years ago.

And even in the face of Japan's currency advantage, Hyundai has been gaining market share in China. I suspect that the Chinese have not completely forgotten World War II, as is also reflected in the continuing tensions in the Sea of Japan.

The ETF has an exceptionally low turnover ratio of 13%, meaning the managers don't waste investors' money trading in and out a lot. The expense ratio is also shareholder friendly at 0.61%, which is good for this type of fund.

We don't need much more color here. Foreign markets are starting to catch a bid with American investors in search of value, and nowhere is it more evident than in Korea.

Moreover, I'd be very comfortable holding this ETF even if we go into a worldwide recession. Value will show in the end, and, at this price, we can afford to wait a bit if we have to.

We will start with a small position and look to build it opportunistically. Initially, we're recommending buying iShares MSCI South Korea ETF up to $66.

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