John Kim sends: Warren Buffett loaded up on Korean steelmaker POSCO (PKX) this spring, and now the price has fallen significantly - it was flirting with $150 and is now down to $54/share. One of the backbones of the Korean economy, this company has an excellent management track record as they’ve overcome just about every challenge over their 40 year history, from accomplishing something deemed impossible at the time when Korea was extremely lacking in funds (post-Korean war), to combating fluctuating commodity prices and growing competition from Indian and Chinese steel companies.

Putting all that aside, I see POSCO as the Godzilla of Asian industry. The company is not only in the steel business, but diversified into businesses that create a synergy amongst their different subsidaries and other external companies. For example, seeing that energy prices were cutting into their operating margins, POSCO established a subsidary company that oversees the securing and exploitation of mines and energy sources across the world. Not only is the core company a leading producer of automobile steel, but also makes steel for major commercial constructions - contributing to projects as diverse as giant skyscrapers and bridges.
POSCO also has exposure to the IT sector, providing consulting and networking for various clients. And, they also share a close alliance and cooperate with my last pick, Korea Electric Power (KEP) .

Just considering the nature of the steel sector, it is true that there is potential profit pressure from underpricing by Chinese and Indian competitors. But POSCO possesses the management track record and technological edge to overcome its competitors, becoming ever more environment friendly (FINEX iron making process), and using innovative methods to produce their core products. They are constantly investing in new plants around the world, including buying stakes in foreign country’s steel companies, in order to maximize their peak capacity.

Even when you take away the commercial side of the company, POSCO has a strong alliance with the South Korean government and its military. South Korea is rapidly expanding its army equipment, particularly its naval warships and production of tanks, so we can rest assured that this company is quite stable, apart from fluctuations in commodity and energy costs.

By the Numbers:
Market Cap - $15.6 billion
Enterprise Value - $17.4 billion
Revenue - $23.46 billion
P/E (ttm) - 5.7x
P/B (mrq) - 0.98x
Debt/Equity - 0.28x
EV/EBITDA - 3.13x

POSCO (PKX) One Year Chart:

Steel ETF One Year Chart:

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