Which Representative 'Defensive Stocks' to Watch in a Bear Market?

[Image source=Yonhap News]

[Asia Economy Reporter Park So-yeon] On the 24th, the KOSPI closed at 2366.6 amid intensified foreign selling pressure due to global economic recession and inflation concerns. As the domestic stock market has recently struggled to escape a bearish trend, the representative defensive sector, telecommunications stocks, have demonstrated resilience in their stock prices.

During June, which saw the largest decline in the KOSPI this year, LG Uplus and KT are evaluated to have held up well in the down market, supported by foreign and institutional buying.

In the third week of June, the telecommunications sector's returns exceeded the KOSPI by 2.2%. During the same period, LG Uplus and KT's stock prices outperformed the KOSPI by 6.8 percentage points (p) and 3.6 p, respectively.

The securities industry expects a moderate rise in telecom stocks in the second half of this year. Shinhan Financial Investment assessed 2022 as similar to the LTE transition period, stating that solid profit growth is expected through 5G subscriber growth and efficient cost management. Shinhan Financial Investment projected a combined operating profit for the three companies of 4.57 trillion KRW, a 13.1% increase from the previous year.

Additionally, regulatory issues that have been a source of concern for telecom companies this year are predicted to have less impact than the market fears. Kang Seok-oh, a researcher at Shinhan Financial Investment, said, "The often-mentioned potential risk of rate cuts is expected to be limited in overall ARPU decline since it will be led by the telecom companies themselves."

Among telecom stocks, LG Uplus is analyzed to have the highest growth potential. This is from the perspective that its stock price has been undervalued due to poor performance in a favorable telecom market so far. Hana Financial Investment named LG Uplus as its top pick and forecasted the bullish trend to continue until August.

Securities firms including Eugene Investment & Securities, Shinhan Financial Investment, and Hana Financial Investment unanimously analyzed that LG Uplus’s stock price, which had been relatively undervalued compared to competitors after the Q2 earnings announcement, is entering a recovery phase.

In Q1, LG Uplus met consensus expectations but lagged behind competitors who posted earnings surprises. In Q2 of this year, temporary costs such as device margins and marketing expenses are expected to be resolved, leading to earnings stabilization.

Notably, the highest wireless subscriber growth rate is also expected to aid earnings improvement. As of Q1 this year, LG Uplus was the only one among the three companies to increase its wireless subscriber market share compared to December of last year.

Along with the upward revision of its dividend policy last year and favorable earnings outlook this year, expectations for dividends are also high. The securities industry forecasts LG Uplus’s dividend yield this year to rise from last year’s 4.0% to the high 4% range to the low 5% range.