Bloomberg reported yesterday that Warren Buffett plans on increasing his stake in Posco. The
comments came yesterday from the company’s CEO Chung Joon Yang.
Posco is the most profitable Asian steel maker. Posco manufactures hot and cold rolled steel products, heavy plate and other steel products for the construction and shipbuilding industries. Posco currently has a market capitalization of $40.8 billion. Posco has an annual average earnings growth of 19.7% over the past 10 years.
The symbol for the company’s ADR is PKX.
Many people do not know that Buffett owns Posco, since it does not appear under his equity holdings. The reason it does not appear in Berkshire’s 13F is because a 13F only requires of all US equities and ADRs.
Buffett owns the shares traded on the Seoul exchange which explains why it is not listed on Berkshire’s 13-F
Buffett owns the shares traded on the Seoul exchange which explains why it is not listed on Berkshire’s 13-F
Currently Buffett owns 3.95 million shares of the company. He bought the shares on February 28, 2009 for $768 million and the shares are now worth close to $2 billion.
There is no word yet as to how many shares Buffett intends on buying. However it is notable that even after the large rise in the Posco’s share price, Buffett still sees value in the stock. It is also noteworthy that Buffett has a not insignificant amount of his Berkshire’s equity holding in a commodity company, a type of company which Buffett tends to avoid. However, Buffett has been investing in other commodity companies recently including ConcoPhillips and Exxon Mobil.
Bloomberg reports that Posco plans double capital spending to invest in plants and mines and raise output by 17% this year. The company plans to spend $30 billion in expansion into India, Indonesia and Vietnam. Perhaps, Buffett sees a bright future in the company. Buffett might also be buying an inflation hedge. Buffett expects significant inflation in the future, and he may be trying to position Berkshire for the coming inflation.
While the big Berkshire news of the day will be the agreement between Kraft and Cadbury, and the vote on splitting Berkshire B shares the Posco news will receive less attention by the media. However, I think it will be interesting to see what transactions Buffett makes over the next few months. After the BNI deal, it is likely Buffett will not be making any large deals to strengthen Berkshire Hathaway’s balance sheet. In addition the market has risen a lot in the past year and there still is value in equities albeit much harder to find. I expect the next few deals by Berkshire will be small and may be inflation plays.
