[Practical Finance] 'Portfolio' Concerns in a Bear Market: 'Big Investors' Eye 'Undervalued Gems'

[Asia Economy Reporter Lee Seon-ae] In a bear market, where individual stock trends prevail, focusing on undervalued stocks is considered a wise investment strategy. Although individual investors are deeply concerned, it is necessary to pay attention to valuation stocks proven by indicators that major investors consistently buy or newly acquire even in such market conditions.

◆ Stocks with Over 5% Stake by Major Investors ‘In Focus’

Since institutional investors generally outperform individual investors on average, it is advisable to closely watch their disclosed shareholdings. According to the Financial Supervisory Service’s electronic disclosure system on the 25th, a common characteristic of stocks that major institutional investors have increased or newly purchased in the past month is undervaluation.

Capital Group newly acquired a 5.04% stake in DL E&C (formerly Daelim Industrial). DL E&C is trading at a 12-month forward price-to-earnings ratio (PER) below 4 times, which is lower than the construction industry average of 5 times. Song Yu-rim, a researcher at Hanwha Investment & Securities, stated, "DL E&C is expected to stabilize its cost ratio in the second half of the year due to cost reduction efforts," adding, "The profitability of the civil engineering and plant business divisions is at a very good level."

Fidelity Management further increased its stake in Hyundai Marine & Fire Insurance. As a result, the shareholding rose from 7.99% to 9.66%. Hyundai Marine & Fire Insurance is an undervalued stock with a price-to-book ratio (PBR) of about 0.5 to 0.6 times compared to expected profitability.

Jeon Bae-seung, a researcher at Ebest Investment & Securities, said, "Hyundai Marine & Fire Insurance’s net profit in the second quarter was 200.1 billion KRW, exceeding market expectations and continuing a strong performance trend," adding, "The improvement trend in insurance profits continued, with the loss ratio dropping to 81.1%, the lowest level since the second quarter of 2017." He further noted, "The current stock price is considered undervalued relative to expected profitability," and "The expected dividend yield also exceeds 5%."

Wasatch Advisors newly acquired a 5.1% stake in semiconductor materials company TCK. Although the semiconductor industry is deteriorating, TCK is expected to increase its operating profit by 27.8% year-on-year to 132.2 billion KRW this year.

◆ Valuation Indicators Prove Undervaluation Relative to Current Earnings

If a stock remains undervalued despite growing earnings, it is a stock worth watching. According to FnGuide, among industries expected to grow earnings this year and whose recent operating profit estimates have increased compared to one month ago, representative industries with a PER below 10 times include automobiles and trading companies.

In the automobile sector, Hyundai Motor and Kia are top pick stocks. Both are expected to achieve stable earnings growth this year, but securities firms analyze that their stock prices still have significant rebound potential. Securities firms forecast Hyundai Motor’s operating profit to reach 10.1447 trillion KRW, a 51.9% increase from the previous year. Kia is expected to record 7.9095 trillion KRW, up 56.1% year-on-year. Meanwhile, the 12-month forward PERs for the two companies are 6.35 times and 5.0 times respectively, indicating strong undervaluation appeal.

In the trading company sector, POSCO International and LX International are considered top picks. Their operating profits this year are expected to increase by more than 50% and 40% respectively, while their 12-month forward PERs are 5.27 times and 3.11 times, suggesting sufficient valuation attractiveness.

Meanwhile, the appeal of holding companies is also emerging. Due to strong earnings growth of affiliates and shareholder returns, there is a judgment that opportunities for stock price rebounds can be sought. SK’s dividend per share increased from 7,000 KRW in 2020 to 8,000 KRW last year, and is expected to rise to 8,550 KRW this year, maintaining a steady dividend expansion trend. LG plans to acquire treasury shares worth 500 billion KRW by 2024 and use resources including rental income and brand royalties for shareholder returns.

Nevertheless, the PBR remains below average. In particular, SK’s expected PBR this year is 0.68 times, significantly lower than the three-year average (2019?2021) of 0.90 times. Kim Jang-won, a researcher at IBK Investment & Securities, said, "Holding companies are rather proactive in share buybacks and dividend increases, and they have unique investment appeal in terms of the sustainability of shareholder returns."

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