Posco, Hyundai Steel, petrochemical stocks touted as candidates to beat the bear

Steel and petrochemical stocks with relatively lower price to earnings ratio versus the market average are recommended as candidates to beat the bearish market, according to analysts.

Samsung Securities on Monday found the price to earnings ratio of the country’s top two steel names Posco and Hyundai Steel – each estimated at 3.55 times and 3.5 times based on the earnings outlook for this year cheap compared with the average 10 times PER of Kospi-listed companies.

The PER measures the stock price against a company’s earnings per share. This means a company with a lower PER than the market average on brighter earnings outlook is undervalued and has room to grow further in general.

Posco’s price to book ratio (PBR) was estimated at 0.44x, and Hyundai Steel 0.33x, also proving that the shares have become greatly undervalued. The PBR is an indicator whether a stock is overvalued or undervalued, with the figure below 1 meaning shares are undervalued and vice versa for above 1. The Kospi-listed firms’ average PBR came at 1.1x.

Posco and Hyundai Steel saw a 20-30 percent plunge in their stock prices since the local stock market’s hot streak peaked out months ago.

“Hyundai Steel’s PBR retreated to the 0.3x level, most undervalued since the 2008-2009 financial crisis,” said Park Gwang-rae, an analyst at Shinhan Investment.

The poor stock performance contrasts with their strong earnings.

Posco raked in 3.12 trillion won ($2.65 billion) in operating profit on a consolidated basis for the third quarter, surging 42 percent on quarter and 366 percent on year. It is the company’s best-ever quarterly result since it started publishing earnings in a regulatory filing in 2006 and the first time to surpass the 3-trillion won mark after breaching 2 trillion won a quarter ago.

Hyundai Steel also saw its consolidated operating profit in the July-September period jump more than 24-fold to 826.2 billion won against a year-earlier period on demand recovery in overall automobile, shipbuilding and construction markets.

Posco’s fourth-quarter operating profit is estimated to reach 2.54 trillion won, up 194.5 percent on year, and outlook for Hyundai Steel is bright as well, according to Eugene Investment & Securities.

In the petrochemical sector, Kumho Petrochemical and Lotte Chemical have been undervalued with the PER at 3.07x and 4.85x. They lost more than 30 percent of their stock value on concerns about the industry’s peak-out amid the virus situation.

“Kumho Petrochemical also is noticeable in the undervalued list, considering its second-quarter operating market of 34.3 percent, PER based on the previous 12-month financial statements of 4.1x, and PBR of 0.87x,” said Lee Jin-ho, an analyst at Mirae Asset Securities.

[ㄏ Maeil Business Newspaper & mk.co.kr, All rights reserved]