Posco: Great Stock No Longer At A Great Price

| About: POSCO (PKX)
This article is now exclusive for PRO subscribers.

Posco (NYSE:PKX) is another stock I wrote about here (and in my now defunct newsletter). Today, there's only one problem with Posco – the price. When I first wrote about the stock in the April 2006 issue of my newsletter, the ADRs were trading under $65 a share. Now, they're around $150 a share. Then, I wrote about the stock on this blog in March (after Berkshire's annual report showed it owned about 4% of Posco). At that time, the ADRs were trading at over $90 a share. So, they've come a long way even from that post. I also reprinted my July 2006 review of Posco where I gave a "Best Guess" price of $124 a share and a "Suggest Selling" price of $190 a share and I wrote this:

The wide discrepancy between my best guess price ($124/share) and my suggest selling price ($190/share) for Posco is due to my being extremely conservative on the best guess price. Posco at $124 a share probably is fairly valued as a steel company – however, it's probably not fairly valued as Posco, because Posco is a great steel company even if it isn't a truly great business.

So, if you take me at my word and say that $124 a share was a conservative intrinsic value estimate and $190 a share was a good dividing line between investment and pure speculation you can split the difference and call it an honest estimate – without any undue conservatism – and that gives you $170 a share. I know that $190 and $124 don't average out to $170, but the estimates do because of the difference in time – those value estimates were made in July of 2006, assuming I discounted by 8% (which is basically what I do whenever the long bond is below 8%) the average 2007 value would be something like $170 a share. A year later, that sounds about right.

The point of this little revisitation exercise isn't to say Posco is worth $170 a share – I have no way of knowing that – but to remind you that (those of you who subscribed to the newsletter) were getting my views on the stock at $65 a share, those who read the blog at $90 a share, and today it is trading at around $150 a share.

Posco is a fine company, but the business did not double in value last year. So, whether you are remembering that I wrote about it or that Berkshire owns it (bought even cheaper – by the way), just remember that those were at much lower prices. Now (as then) I still don't know a damn thing about steel – so, I may be wrong, but it seems to me this stock was a fat pitch south of $65 and it isn't a fat pitch north of $150. There really isn't much more to say about it – but, I thought it was important to mention that the price has risen sufficiently to alter my view of the stock. It was once an extraordinary bargain – now it looks rather ordinary.

PKX 1-yr chart:

PKX 1-yr chart