I'd been watching Posco (PKX), the huge South Korean steel manufacturer, for several months as its stock price trended downward. Last week North Korea lobbed some artillery shells at a South Korean island and the price of Korean securities cratered. I took that opportunity to buy PKX.
Some back of the envelope calculations indicate that you can buy PKX for a hair above book value, 7ish X forward earnings, and 5 X cashflow. The balance sheet is sound with debt at about 40% of equity. The world economy is performing adequately and Posco is well positioned in Asia. Input costs are obviously rising, but so far not crippling. PKX is at a reasonable entry point for the longer haul.
I'm already in, and ahead a couple of dollars, so it is unlikely that I'll buy more, even if the little dictator puts on his uniform, stops drinking beer, and causes more problems on the Korean Peninsula which causes PKX shares to drop further. That may happen and prove to be a gift as I don't believe we are in for a repeat of the Korean War and PKX owners will be rewarded as demand for Posco's steel grows.
About the author:
Ockham Research is an independent equity research provider based in Atlanta, Georgia. Security analysis at Ockham Research is based upon the principle known as Ockham's Razor, named for the 14th-century Franciscan friar, William of Ockham. We utilize this straightforward approach to value over 5500 securities, with key emphasis given to the study of individual securities' price-to-sales, price-to-cash earnings and other historical valuation ranges. Please visit www.ockhamresearch.com for more information.
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