Korea Investment Value Asset Management

HOME > Investment Philosophy > Investment Ideas

Low P/E Stock
Low P/B Stock
Franchise Value Stocks
Holding Company Stock
Growth Stock

Focus on undervalued stocks trading at a discount to their earnings potential The most popular way of implementing value investing is finding low P/E and P/B stock. You may think that finding low P/E stocks is difficult, particularly in a bullish stocks market. However, the market tends to become polarized when it soars, and as a result, we often come across a larger-than-expected number of low P/E shares that have been neglected by the market. We believe that such low P/E shares will be rapidly re-rated upon the fading of excessive market interest disproportionately centering around certain stocks.

Focus on undervalued stocks trading at a discount to their net asset value While a closer look at corporate financial statements leads us to the discovery of low P/B shares, there are not a few "hidden low P/B shares", such assets as land, real property or securities whose present value is not booked in the balance sheet. To help our investors to make the right choice, we advise meticulous investors who have often spotted those hidden low P/B shares to take the following two questions into consideration, before making investments: (i) Is the asset truly valuable? (ii) When will the asset realize its value?

Focus on low-risk stocks with barriers to entry A company's franchise value, represented by brand power, technological prowess and exclusive distributorship among others, serves as an entry barrier to potential competitors and keeps earnings intact. Accordingly, a company with franchise value displays higher enterprise value than the other without franchise value, even when the two companies generate a similar amount of profit. Investors often ignore franchise value, as it is not specified in financial statements. However, franchise value is one of the most critical elements that can boost enterprise value and entails little risk inherent in long-term investment. Weighing these positives, we strive to pick low-risk franchise value stocks.

Focus on stocks possessing control premium Under holding company structure wherein a holding company owns equity stake in and exercises management control over its subsidiary, the subsidiary's enterprise value often exceeds its market capitalization thanks to control premium. The value of control premium is not usually observed, but tends to be reflected in share prices when the company undergoes significant changes to its corporate governance such as M&A. Looking at most of Korean holding companies, their subsidiaries are trading at a considerable discount to their foreign peers, and their market value has seldom been fully reflected in the enterprise value of the holding company. Considering these factors, we believe that Korean holding companies possess long-term investment merit.

Focus on low-priced stocks having strong growth potential One of the widely held views with respect to value investing is that striving to discover a growth stock does not go along with the principle of value investing. While we find such view to be reasonable-given that growth stocks trade at high prices on the back of a majority of investors' strong demand-we draw attention to the fact that the market does not go without occasional misjudgment, and sometimes misses out on the growth potential of certain companies, due mainly to its: (i) lack of attention; and (ii) underestimation of the companies' growth potential. While our investors need not take the risk of investing in high-priced growth stocks, growth stocks still remain one of the most attractive investment targets for those ready to buy on dips.