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Why Samsung Stock Surge Won’t Fizzle Out Like Apple’s

Thursday, 22 Nov 2012 | 4:19 AM ET
Source: Samsung

Shares of Samsung Electronics, which have surged almost 35 percent since the start of the year, closed at an all-time high on Thursday boosted by expectations that its smartphone business will continue to drive strong profit growth.

However, bumper gains in the stock price have raised the question whether the global electronics giant can sustain this growth and if it is vulnerable to the same fate as competitor Apple — whose share price has tumbled 20 percent since touching an all-time high of $702 mid-September, due to worries over a supply shortage and slower earnings growth.

One analyst, who believes Samsung is shielded from many of the risks facing Apple, forecasts the company's stock will rise a further 35 percent over the next 12 months. On Thursday, the Seoul-listed stock closed at a record high of 1.417 million Korean won ($1,300). It has risen around 9 percent in the past month.

Unlike Apple, Samsung is competitively placed to gain further market share in the global smartphone market, said Daniel Kim, analyst at Macquarie Securities, noting that while the former launches just one new iPhone a year, Samsung's releases multiple smartphones in a wide price range, making it better positioned to tap growth in the market.

"Most of the volume growth globally is coming from the low-to-mid range smartphones, and Apple's not part of that," he told CNBC.

(Read more: Are the Best Days Over for Apple's Stock?)

In the third quarter, Samsung's global smartphone market share stood at 35 percent, double that of Apple's at 17 percent. Next year, Kim expects Samsung's share will grow to 40 percent, while Apple's will remain stagnant.

Superior Business Model

The vertically integrated nature of Samsung's business ensures that the company is less exposed to hurdles such as component shortages, or rising costs at a Chinese manufacturing partner, Kim added.

"I don't think Samsung will follow the fate of Apple. Apple is currently struggling from component shortages because they outsource their components. They are also facing input cost pressures as a result of the component shortage and rising labor costs in China," he said.

Samsung, by contrast, is able to control costs more efficiently as it produces its own components and operates its own factories (wherever they are located), which are largely automated, Kim added.

Last month, Apple warned that its profits would come under pressure in the run-up to the year-end holiday season, because the margins on some new product launches including the iPad mini were below their corporate average, the Financial Times reported. The iPhone generates the highest profit margin of all Apple's products, according to analysts.

Despite the run-up in Samsung's share price, Kim adds the stock is trading at a "comfortable" level in terms of valuations. The company is trading at around 7.8 times forward earnings, compared to 9.6 times for Apple.

—By CNBC's Ansuya Harjani

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Disclosures:

Daniel Kim does not hold any Samsung stocks.

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