Board: Berkshire Hathaway
Pohang Iron and Steel, PKX, 005490:KS, the never-mentioned holding.
Besides Berkshire, who owned $1.3bn worth at end 2012, this is one of the few large holdings of Daily Journal (Mr Munger's picks) as we learned in the February disclosures. If I'm not too mistaken it's the only one that has not really soared since its purchase by DJCO. The current price is lower than the average price since, well, any starting year 2002-2013. I think the only reason it's no longer itemized in BRK's annual list of big holdings in the annual report is that the shares have done poorly so it's no longer one of the biggest. That could be seen in a bullish light. (Since there is no need for Berkshire to disclose non-US shares in a 13f it's also possible they've sold, but I doubt it). I believe DJCO had to disclose because they own US-listed ADRs rather than direct Korean Posco shares as Berkshire does.
Posco, third largest steel company worldwide by tonnage, is also the lowest-cost producer among the biggies. They should in theory gain a little market share even if the size of the market is flat. I don't think it will be flat. They are traditionally a Korean producer, and about 50% export. But they have built a fair bit of expansion capacity outside their Korean base, including a big mill in Indonesia that is now up and running. Final capacity of that one will be about 1/6th of their current total. The big Indian plant is probably best left unmentioned, though in theory the government has finally (finally) procured 2770 acres of land for it just last week. Don't hold your breath on that one.
Current run-rate earnings per ADR (representing 1/4 of a true Posco share) are around $7.50 a share. That's around half their cyclical peak around 2005. The current price of $74.41 represents just under 10 times current earnings and just under 5 times prior-peak earnings. There are those who think we are near the bottom of the cycle. Maybe not, but even if not it's hardly overpriced. The balance sheet is solid and they're not going away. The current multiple seems to be assuming that current earnings are top of cycle, not bottom of cycle. Current yield based on trailing (variable) dividends is 2.00%. Estimate for 2014 represents 2.7% of today's price.
Yes, it's a cyclical business, but they seem to earn through the cycle. Iron ore prices don't seem to be a big worry. To a certain degree it's a pass-through expense for the industry since steel demand is not very elastic. Cyclical, but not elastic. Also, there is a huge amount of iron ore extraction capacity coming on line in the next couple of years, so it doesn't seem to be a current risk.
Not much is cheap these days. They might be worth a look. Thoughts?