Value investor and author Mohnish Pabrai (Trades, Portfolio) purchased a new holding in Berkshire Hathaway (BRK.B, Financial) during the fourth quarter — his only new investment during the period. Pabrai also threw in the towel with another notable holding, South Korean steel maker Posco (PKX, Financial).
Pabrai closed a previous position in Berkshire back in the first quarter, selling the holding for an average of $147.23 per share. Over the past year, Warren Buffett (Trades, Portfolio)’s holding company has declined 15% in price, and Pabrai took the opportunity to purchase 87,006 shares during the fourth quarter for just $134.21 per share.
Berkshire currently trades at just 13x earnings. In addition, the Peter Lynch earnings line, which aligns $1 in earnings per share with $15 in stock price, is at $138, which indicates the company is undervalued. In the third quarter, Berkshire reported diluted EPS of $3.83, a significant increase from $1.87 in the year-ago quarter.
While Pabrai may be taking advantage of Berkshire’s bargain price, the weakness in commodities affecting Posco’s business may be too much overcome. Pabrai sold his 982,280 shares for an average of $37.66 per share. This is down from the average $60.93 per share that Pabrai paid when he purchased a large portion of the holding in the first quarter.
Posco reported losses of $1.45 per share during the third quarter, compared to EPS of 69 cents in the prior year quarter. Earnings have been in long-term decline since 2011 when EPS was $11.63.
Global steel prices are at their lowest level in a decade due to a flood of Chinese exports that are state-subsidized. Posco’s CEO recently pointed out that 80% of Chinese steel mills are suffering losses, prompting hopes for consolidation as the country recognizes the severity of oversupply.
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