Monday, January 25, 2010

Buffett, Inflation and Posco (NYSE:PKX)

Asian Steel Maker Posco (NYSE:PKX)

Knowing historically how Warren Buffett has resisted investing much in the commodity sector, it's telling that he has invested a significant amount in Posco (NYSE:PKX), the most profitable steel maker in Asia.

Posco has been an extremely successful company over the last decade, enjoying an average profit of 19.7 percent during that period of time.

The stake Buffett owns in Posco via his Berkshire Hathaway (NYSE:BRK-A) isn't a small one, as he acquired 3.95 million shares as of last February 28 for $768 million, and they've now increased in value in that short time to $2 billion.

With Buffett also buying into energy companies recently, you do have to ask the question of what it is he is doing, and all indicators seem to say he's protecting against inflation, which he knows is coming, and is already here really.

Of course Buffett won't mind the inevitable rise in prices these large commodity companies will enjoy, as his stakes in ConocoPhillips (NYSE:COP) and Exxon Mobil (NYSE:XOM) show.

In reality, the Burlington Northern (NYSE:BNI) acquisition by Buffett could easily be considered a commodity move, at least in part, as much of the freight moved by the railroad is definitely raw materials and livestock.

Concerning the ongoing relationship between Posco and Warren Buffett, Buffett somewhat contradicted the assertion by Posco executives he is looking to continue investing in the company. That caused shares in Posco to decline after Buffett rumors persisted until he addressed them recently.

Buffett maintains he would buy more shares if the price goes down, and he has no plans to sell any shares.

Asian Steel Maker Posco (NYSE:PKX)

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