ROIC1
Long/short equity, deep value, value, special situations

POSCO: Sustainable Competitive Advantages, Significant Margin Of Safety And Catalysts For 150% Upside

Opportunity:

POSCO (NYSE:PKX), one of the largest steel producers in the world and owner of 41% of South Korea's steel production in 2012, is currently being valued at a 40% discount to its normalized earnings power value, and at par relative to its trough earnings power value. Including its planned capacity expansion over the next three to five years, a fair value for PKX's equity stands at 150% above today's valuation. PKX's gross margins have been temporarily reduced by more than 25% from their normalized long-term values as a result of significant fluctuations in raw material inventory costs, unsustainable iron-ore prices, and a weak pricing environment for finished steel products. As a result of PKX's durable cost advantages...

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