Food and Beverage Stocks Hit Bottom... "Bargain Sale Opportunity"

[Image source=Yonhap News]

[Asia Economy Reporter Ji-hwan Park] The stock prices of the food and beverage sector continue to struggle in the stock market. They have been affected by the burden of high performance expectations from last year's benefits due to the novel coronavirus disease (COVID-19) and the rise in grain prices used as raw materials. Securities firms predict that although there is still a burden of a low base effect this year, stock prices are expected to rebound due to improvements in fundamentals.

According to the Korea Exchange on the 13th, the KOSPI Food and Beverage Index fell by 7.9% over about five months from August 12 last year to the 12th of this month. Considering that the KOSPI rose 28.5% during the same period, breaking through the 3000-point mark, the sector appears to have been thoroughly sidelined in a bullish market.

The undervaluation trend of the food and beverage sector's stock prices is interpreted as being due to the weakening expectations for this year's performance caused by the burden of the low base effect and the impact of cost pressures such as rising grain prices. Last year, sales surged sharply due to a rapid increase in household consumption amid the COVID-19 pandemic, but this year, it is analyzed that the sector cannot avoid relatively poor performance.

Researcher Kyung-shin Lee of Hi Investment & Securities explained, "Concerns in the market related to the low base effect caused by the expanded consumption related to COVID-19 last year are acting as a discount factor on the stock prices of food and beverage companies."

The sharp rise in global grain prices such as soybeans and corn also acted as a negative factor by reducing cost competitiveness. As of the end of last year, prices of wheat, soybeans, corn, and raw sugar rose by 24%, 57%, 50%, and 41%, respectively, compared to early June last year. This was influenced by abnormal weather in major supply regions and a significant increase in demand due to the resumption of trade between the United States and China.

However, the overall evaluation in the securities industry is that the stock price correction is excessive considering the fundamentals of the food and beverage sector. The prolonged COVID-19 pandemic has solidified a consumption pattern centered on eating at home, and further increases in grain prices are expected to lead to product price hikes, thereby alleviating cost burdens.

Researcher Mi-jin Jo of NH Investment & Securities said, "Despite the ongoing improvement in operating performance compared to overall concerns, the sector index is trading at a discount of more than 10% compared to the KOSPI," adding, "The current stock price can be seen as a bargain sale for the first time in 10 years."

This content was produced with the assistance of AI translation services.