Energy & Chemical Stocks: Now's the Buying Opportunity

Chosunil, MBN Gold Manager, stated that both markets experienced high volatility on the triple witching day, but precisely at such times, setting the right investment direction is crucial. He chose the energy sector as the target sector for tomorrow, for the first time in a while. The energy sector is regarded as an industry that can generate consistent profits without being greatly affected by economic cycles, due to its long infrastructure construction period.

In the traditional energy industry, risks in major oil-producing or gas-producing regions, i.e., the outbreak of war, create momentum for related energy prices to skyrocket. This situation is currently occurring, bringing energy-related stocks into focus.

The conflict between the United States and Iran is lasting longer than expected, and there are observations that Iran will not end the war until the US midterm elections scheduled for November 3rd. After the US missile strike on Iran on February 28th, an early end was initially anticipated. However, it now seems Iran is exploiting Trump's Achilles' heel and employing maximum risk to prevent a Republican victory. These geopolitical issues are driving the surge in the traditional energy industry.

Furthermore, the amount of electricity required for the widespread adoption of electric vehicles is substantial. Only four years remain to achieve the carbon neutrality goal by 2030, leading to significant growth in renewable energy industries such as solar, wind, and hydro. Manager Chosunil plans to target one of these energy sectors and present recommended stocks.

Amid concerns of prolonged geopolitical risks pressuring the domestic market, energy has been identified as a sector that could benefit from such a situation. Manager Chosunil mentioned his top 5 recommended stocks, stating that Hankook Cosmetics Manufacturing recorded over a 91% return. Notably, Heung-goo Petroleum recorded over a 47% return as international oil prices surpassed $100, increasing interest in oil-related stocks. Manager Chosunil explained that the reason he recommended oil-related stocks since July was the possibility of a prolonged US-Iran conflict.

While an early end to the US-Iran conflict was anticipated, it was predicted from July that the war would not end easily as Iran intensified its retaliatory actions. In this situation, Heung-goo Petroleum has a business model of purchasing and selling petroleum products from GS Caltex, which means it does not bear the burden of large-scale facility investments. This differs from typical petroleum product manufacturing companies that process crude oil through large-scale facility investments. As a result, Heung-goo Petroleum is currently recording high profits.

Heung-goo Petroleum's business structure, which involves purchasing and selling products from GS Caltex, results in lower facility investment burdens and higher profitability. It is a very robust company with a debt-to-equity ratio of less than 17% this year, and its sales and operating profit are favorable. Recently, its stock price rose due to indirect benefits from geopolitical risks, and despite hitting the daily limit today, further upside potential is anticipated. Given its past surge to over 30,000 won, peaking at 36,000 to 37,000 won, it is expected to break through the 25,000 won price range.

Heung-goo Petroleum's stock price is predicted to break through the 25,000 won box, even if it doesn't reach its past peak of 36,000-37,000 won. This is due to the analysis that Iran will not end the war until the US midterm elections on November 3rd. The US has also announced that it will resolve the Iran issue after the midterms, but the outcome of that decision is uncertain. Investors should not be troubled by these war issues; in fact, Wall Street investors have already been investing in certain petrochemical stocks at low points for 3-4 years and generating profits.

With the prospect of a prolonged Middle East war, Heung-goo Petroleum's stock price is predicted to rise much higher. Although the Chinese market is also seeing short-term surges followed by adjustments, the overall performance of petroleum products is improving, leading to a positive outlook. Heung-goo Petroleum broke the 15,000 won line today, and its 3rd target price has been set at 16,000 won. Investors are advised to remember the 16,000 won target price, and Lotte Chemical was then introduced as the stock to target for tomorrow's trading.

Lotte Chemical was presented as tomorrow's target stock. The Lotte Group experienced difficulties last year, recording its largest-ever deficit of over 2.4 trillion won. Typically, management meetings in November or December set plans for the next year, but last year, due to poor performance, the management meeting was held at a training center, emphasizing the need to 'buck up.' This suggests that the poor performance of the oil and chemical sectors, including Lotte Chemical and Lotte Fine Chemical, significantly impacted the entire group.

Lotte Chemical's poor performance is largely attributed to China-related risks rather than its own internal risks. China has significantly increased its share of the petrochemical industry since 2010. Petrochemical products are widely used in daily life for items like Crocs shoes and clothing. From the mid-2010s, China boosted its petrochemical share, and in 2017, it increased the production of intermediate raw materials such as PX and PTX.

In 2019, China significantly increased its production of cracker products that produce basic olefines like ethylene and propylene. From 2020 to 2022, China's ethylene production peaked. Traditionally, the US was number one, producing over 40 million tons, but in 2022, China became number one with 45 million tons, and the US was second with 43 million tons. After this peak, the Russia-Ukraine war broke out in 2023, causing international oil prices to surge.

As international oil prices and petroleum-related product prices surged due to the Russia-Ukraine war, Chinese companies dumped large quantities of goods onto the market. This significantly impacted Japan and Korea, with Lotte Chemical being particularly affected. In response, Lotte Chemical accelerated its Daesan plant's NCC and integrated its business scope through a joint venture with HD Hyundai Chemical. Subsequently, it adjusted facilities even at the Yeosu industrial complex to respond to the risk. Efforts were made to reduce the proportion of general-purpose petrochemical products that were incurring losses.

Lotte Chemical reduced the proportion of general-purpose petrochemical products that were heavily unprofitable. It also diversified its raw material procurement sources, which were concentrated among a few suppliers, to reduce raw material costs. Petrochemical companies generally experience a lagging effect, which is a time-lag effect that allows them to generate significant profits by using crude oil secured at low prices 2-3 years ago during current high oil price periods. This lagging effect is contributing to Lotte Chemical's profit improvement.

Lotte Chemical recorded an operating loss of over 2.4 trillion won last year, but this year it is seeing the lagging effect, recording over 73.5 billion won in profit in Q1 and over 100 billion won in Q2. Although Q3 performance may be somewhat sluggish, a turnaround is possible when combined with Q4. Lotte Chemical is now shifting its business focus from producing basic petrochemical products to high-value-added specialty products. Along with this, it is strengthening the financial structure of its subsidiaries and divesting unprofitable business units (e.g., selling Resonac shares) to concentrate on profitable sectors.

Lotte Chemical is strengthening the financial structure of its subsidiaries and has shown efforts to aggressively divest unprofitable business units, such as selling its stake in Resonac. It plans to actively focus on sectors with promising performance in the future, making it a stock that investors should pay attention to. The current stock price has significantly dropped, then surged yesterday, and is slightly adjusted today. It is advised to target the stock at the opening price when a correction occurs.

Manager Chosunil stated that investors can find more investment information by searching for 'Chosunil' on Naver Band. He recommended checking the band, as it contains essential stocks to watch. He explained that he reduced the proportion of stocks that were at highs in June and July to secure cash, and in August, he targeted one stock, achieving over 400% in returns.

Despite August being a volatile market, a strategy of concentrating on a few stocks led to significant returns. Notably, he achieved the number one return among about 30 managers during August. The rally is continuing with new stocks in September, with very good returns, he emphasized. He plans to provide more investment information via a YouTube live broadcast at 8 AM after tomorrow morning's show.