I understand, my views are not outside the mainstream, but long-term investors should buy Apple shar...
A Bright Picture for an LCD Maker
05/05/2010 1:00 pm EST
Yiannis G. Mostrous, editor of Silk Road Investor, says emerging markets are setting the pace for the global recovery, and he likes a Korean manufacturer of LCD panels.
Asian economies continue to perform well as the global economy remains in recovery mode. A year ago, global growth expectations were extremely low. But led by Asia, the economy has bounced back strongly.
But in my view, the recovery will go back to baby steps and not move in leaps and bounds. I'm not predicting a “double dip” scenario, just that economic growth in Asia will remain strong but not eye-popping.
The stocks to watch will belong to companies with low relative valuations, and those that are expected to deliver on the earnings front, i.e. upward earnings revisions.
[Last year] the emerging markets’ performance was diametrically opposed to their performance in the 1980s recession. Back then, the US, Europe, and Japan were responsible for more than 50% of the global economic growth of the recovery, with the major emerging economies accounting for less than a fifth of the growth contribution at that time.
This time around, China has been responsible for around one-third of the global economic recovery. If you add India, Russia, and Brazil into the mix, then the largest emerging economies have accounted for more than half of the increase in global [gross domestic product] growth since the trough of the recession.
The US, eurozone, and Japan, on the other hand, have been responsible for less than 20% of the growth recovery so far.
LG Display (NYSE: LPL) is one of the leaders in the TFT-LCD panel market with 22% global market share, competing with Samsung Electronics. The company was established in September 1999 as 50:50 joint venture between LG Electronics and Philips.
The company recently announced first-quarter results that were much stronger than expected because of global economic growth and demand. The company also raised guidance for the second quarter, supported by sales volume increases, tight supply, and strong demand. Inventory in China is being run down relatively fast as demand in the country for flat panels remains exceptionally strong.
The company has projected that LCD TV demand growth in 2010 will grow around 25%, while 2011 will see growth of about 20%. The industry is already seeing the faster replacement rate even in regions previously considered very mature like Japan.
The company’s projections bode well for South Korea’s economy—it expanded by 1.8% in the first quarter, and that expansion should continue. Exports grew by 3.4 percent, while manufacturing grew 3.6 percent after a 1.7 percent decline in the previous quarter. According to the Bank of Korea, the economy will grow this year at its fastest rate in four years.
LG Display trades at humble valuation of seven times expected 2010 earnings even after the stock’s recent run. Buy LG Display up to $25. (It closed below $20 Tuesday—Editor.)
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