Should We Finally Consider Buying Stagnant Steel and Chemical Stocks?

[Asia Economy Reporter Park Jihwan] Steel and chemical industry-related stocks have prominently appeared among the top stocks with the highest "discrepancy rate," which refers to the difference between the target price suggested by securities firms and the current stock price. Amid increased market volatility due to rising interest rates and the spread of COVID-19, there is advice to pay attention to relatively undervalued stocks with lower prices.

According to financial information provider FnGuide on the 29th, among stocks with target prices suggested by three or more securities firms, the stock with the largest discrepancy rate based on the closing price on the 26th was Hyosung TNC (104.4%). The closing price of Hyosung TNC on the 26th was 510,000 KRW, with an average target price of 1,042,200 KRW suggested by eight securities firms, resulting in a discrepancy rate exceeding 100%. Following this were SK Rent-a-Car (86.6%), SeAH Besteel (82.4%), OCI (81.0%), Kumho Petrochemical (81.0%), Korea Steel (79.7%), LX International (77.2%), Hyosung Chemical (75.8%), and Hyundai Steel (73.9%). A high discrepancy rate indicates that the current stock price is undervalued. If the discrepancy rate is 100%, it means the stock price could potentially double from its current level.

Looking at the current top stocks by discrepancy rate, most are related to steel and chemical industries. These stocks collectively heated up the market in the first half of the year but have shown sluggish price movements in the second half due to concerns over a peak in earnings. The widening discrepancy rates for these stocks reflect that securities firms expect stock prices to decline rather than rise. The KRX Steel Index has fallen 13.4% over the past two months from October to the 26th of this month. During the same period, the KRX Chemical Index also dropped 13.3%. The decline in individual stocks is even more pronounced. Hyosung TNC, which once approached 1,000,000 KRW, has dropped more than 20% over two months, remaining in the low 500,000 KRW range. Hyosung Chemical also fell 26.3%, currently trading in the 250,000 KRW range. Steel stocks such as SeAH Besteel, Korea Steel, and Hyundai Steel have also plunged by 25.3%, 23.8%, and 17.0%, respectively.

The securities industry views concerns about steel and chemical stocks as excessive. While some earnings slowdown is expected, these companies are evaluated to show stronger profit resilience compared to the past. Especially given the significant price drops in the second half, a bottom-fishing strategy is considered effective. Daishin Securities stated regarding the outlook for the chemical sector next year, "We can expect a market rebound due to global economic recovery and easing of logistics disruptions." KB Securities researcher Jung Hyejung forecasted, "Due to changes in steel supply structure driven by China's strengthened carbon emission reduction efforts, steel supply and demand are expected to remain tight next year," adding, "The profitability of major steel companies is also expected to be determined at a higher level compared to the past."