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Industrial Metals Mixed

Doug Casey — Fri, 13 Feb 2009 19:13:32 +0000

The base metals were mostly lower on Thursday. Copper’s ups and downs virtually cancelled each other out yesterday, as the metal finished at $1.5249/lb., up a half-cent.

Nickel declined to the late morning, but then rallied back a bit to close at $4.6138/lb., down 5 2/3 cents. Zinc slid lower through most of the day, ending at $0.5061/lb., down a penny. Aluminum was weak, shedding more than a penny, to $0.6065/lb., while lead also edged lower, falling less than 2/3 of a cent, to $0.5112/lb.

Copper managed to eke out a small gain after three straight days of losses, but the other industrial metals all posted small declines as traders were underwhelmed by the stimulus package hacked out by Congress.

Commerzbank analysts were among the unimpressed, writing that, “In the medium term, the package should also revive the demand for base metals … in the short term, however, the effects on demand should be limited.”

The red metal’s recent strength represents the triumph of “hope over reality,” commented analyst Robin Bhar at Calyon. “Hope is that things are improving, reality is they are not,” he said, referring to the demand outlook.

On the stockpile front, yesterday’s addition was small but not non-existent. Copper inventories monitored by the LME advanced by 225 metric tons, to 516,675 tons.

Underscoring the weak demand in the eurozone, Norddeutsche Affinerie, Europe’s biggest copper producer, said it may shorten working hours in its copper processing division in Hamburg after posting a first-quarter pretax loss and announcing it expects its full-year profit to be down sharply.

Meanwhile, nickel prolonged a four-day slide on speculation demand will deteriorate as stainless-steel makers deplete inventories of the metal until they get some sign that economic growth is returning.

Demand for nickel will fall 15% this quarter from a year earlier and 10% in the next quarter, according to estimates from Barclays Capital. And Posco (NYSE:PKX), Asia’s biggest stainless-steel maker, cut prices last week for the first time since August, in an effort to up demand.

“We are clearly anxious over the coming quarters, and the market is remaining quite weak,” said Philippe Smits, of stainless-steel warehouse company Contisteel NV/SA in Belgium. “I’m not getting signs things are improving.”

Source: Industrial Metals Mixed

Moly’s Energy Chain

Jim Nelson — Sun, 14 Sep 2008 00:40:48 +0000

While both presidential candidates are trying to outdo each other by implementing the words geothermal, solar, and wind into every stump speech, oil’s hay day is by no means over.

We will continue to drive cars run on gasoline, homes will continue to be heated by natural gas, and power plants will continue to burn oil. Sure, we may see 10% or 15% of our electricity come from renewables in the next decade or two. But, according to the EIA, the U.S. will still need 47% more oil and 54% more natural gas by 2025.

As investors, we should use that to our advantage. We have the option of buying oil producers, oil technology developers, and oil refiners. But, the real money is in pipeline builders.

This nation’s pipeline infrastructure has already aged far beyond what it should have. These pipelines have far outlived their expected lifetimes, and unlike much of this country’s neglect for failing infrastructure, oil and gas pipelines are not forgotten. In fact, we are at the start of an enormous pipeline infrastructure overhaul.

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According to Stockinterview.com’s senior editor James Finch, the increase in oil and gas demand over the next decade and a half “implies pipeline projects on the order of some 600,000 miles.” Even if a quarter of that is built, it will certainly cause a boom in the pipeline industry.

But most pipeline companies are already big. They are mostly giant corporations that have already been built up. Plus, their expenses are high with the surge of steel prices. It takes a lot of steel to build all those pipelines. So we need to find another way to get in on this game.

One way would be to find a steel manufacturer. The demand for steel is through the roof with the rapid growth of China and India. Steel manufacturers like POSCO (PKX) of South Korea are doing quite well for themselves as everyone else is struggling. But we are too late in the steel boom. Wall Street has already figured it out.

If we continue to backtrack through the process, we land on the metals miners. We need to find the companies that are digging the metal out of the ground that will go into the steel that will be used in pipelines to carry the oil and gas to be burned. If you can follow this string from the end result – the increase in oil and gas demand — to the beginning of the process — pulling the metal out of the ground — then you already did the hard part. Here’s what that chain of investment opportunities looks like:

Base Metals Miners -> Steel Producers -> Pipeline Manufacturers -> Oil and Gas Companies

So let’s invest at the beginning, because you know how the middlemen always get their cut. By the time you get to the end, margins are minute. So, base metals miners are the way to go.

Now, you have to find out what you are looking for. You don’t want to pick just any mining company. You have to make sure you have one that is a) mining the right metal, b) at the right price, and c) doing it cost effectively.

Pipelines — which we can’t forget is the end use — use a lot of metals that will strengthen the steel and prevent corrosion. That means chromium, nickel, titanium, copper, and aluminum miners should do quite well. But there is another metal out there you may or may not have ever heard of.We’ve written to you about molybdenum before. It is the hard working rare metal that — when added to the mix — strengthen steel for tough assignments like carrying billions of barrels of oil and gas from producers to refineries to power plants over a half a century of wear and tear. That’s quite a workload. Steel producers and pipeline companies alike are making sure molybdenum is mixed into the alloys.

So that’s where we should look. If you can find the right molybdenum miners before the market does, you will be sitting on a major investment opportunity.

Sincerely,
Jim Nelson

Source: Moly’s Energy Chain

Horacio Marquez Says Nucor (NUE) Poised for Big Gains

Horacio Marquez — Mon, 08 Sep 2008 12:52:16 +0000

Steel-sector stocks have been taking investors on a roller-coaster ride lately. At one point this year, they had climbed a whopping 36%, but they are now down 16% for the year.

US steelmaker Nucor (NYSE:NUE) took a thumping along with the rest of the sector. Shares are down 18% for the year, dropping 42% from their peak for 2008.

However, Money Map Report editor Horacio Marquez reckons Nucor’s “terrific fundamentals” mean its shares are poised for big gains. He says, “all the technical indicators … point to a massively oversold condition in Nucor’s shares.”

Shares of the Charlotte, N.C.-based Nucor could not escape the carnage and have endured an even bigger swing: From their low of $50.30 a share in early January, the shares of the No. 1 U.S. steelmaker soared 66% to a trade at a high of $83.56. From their peak, Nucor’s shares have declined 42%, closing Friday at $48.45. They’re down 18% for the year.

This sell-off came on the heels of spectacular second-quarter earnings, where earnings per share jumped 70% to $1.94 a share on the back of major strengthening in global steel prices. The disappointment came from a charge to inventory and forward-looking guidance of $1.80 to $1.85 a share, which was below Wall Street’s expectation of $1.91 a share.

Nucor remains one of the most admired companies in the steel sector, thanks to its superb management, ability to innovate, unquestionable leadership in the mini-mill steelmaker sector, and its disciplined business model.

Wall Street has soured on the overall steel sector. Just last Thursday, investment banking giant Goldman Sachs (NYSE:GS) downgraded the sector from “Attractive” to “Neutral.” It maintained its “Buy” rating on both Nucor and United States Steel (NYSE:X), but removed the latter from its “Conviction Buy” list.

The million-dollar question is this: Are we trying to catch a falling knife, or are we poised to capitalize on a superb buying opportunity? Unlike most cases, in which a good argument can be made either way, the answer here is very clear-cut.

Indeed, the situation with Nucor’s shares stands as an interesting case study of how Wall Street – and the financial markets in general – can overlook the profit opportunities that are then left for us to discover. In this case, in fact, Nucor may actually have created the profit play.

Let me show you just what I mean.

Among other peculiarities of Goldman’s shift in opinion, coming after such a spectacular decline – where sector coverage was transferred from one analyst to another – was the investment bank’s recognition that the “valuations of some of these stocks reflect a doomsday scenario, which we believe is not what longer-term fundamentals suggest.”

I could not agree more with this last assessment.

You see, I have been calling my many contacts at hedge funds, on Wall Street, and with local businesses in New York, Brazil and even China to find out exactly what the global situation is with respect to steel demand, and steel prices.

Yes, here in the United States, car sales of 13 million are a temporary disaster. But the needs in terms of infrastructure are huge. And construction of condos, which seemed doomed not so long ago, will reignite pretty soon.

Prices in the real-estate bubble areas have collapsed, and lenders have taken already huge losses. Multi-billion-dollar funds, which had been waiting up to three years to start deploying their capital, are starting to invest, and are buying entire buildings at discounts of as much as 50 cents on the dollar. And even the noted doomsday prophesier – PIMCO manager William H. “Bill” Gross – recognizes that investing in distressed mortgages represents an interesting investment opportunity.

Indeed, this is actually an understatement: When you are one of the only bidders in the market, and the banks are forced sellers, you can name your price. And current prices of distressed mortgages have incredible discounts to the financial model prices in normal conditions, guaranteeing great returns for buyers.

These and other de-leveraging sales and recapitalizations are ultimately cleaning up the balance sheets of banks and allowing them to return to and resume their regular and profitable bread-and-butter lending business. Non-residential construction and other steel-consuming manufacturing have barely slowed down – and in some cases are actually increasing due to strong export growth.

No wonder the U.S. economy grew at a 3.3% clip in the second quarter. The August payroll numbers indicate that it is growing at 2% or more, without counting the effect of the fiscal stimulus. The relatively weak – but by no means recessionary – job picture guarantees that interest rates will remain on hold (at current low levels) for quite some time, helping the U.S. economy out of the temporary slump.

On the international front, my conversations with locals and other business reports I reviewed present a mixed bag for steel prices: Let’s take a look at the steel outlook in key markets around the world.

In Brazil, there is an imbalance between the supply and demand for slab steel that will take five years to fill.

China has slowed a bit – reaching high single-digit rates – due to the shutdown of factories and electricity in the major cities. But this was temporary, part of an overall strategy intended to clean the air and reduce overcrowding for the Summer Olympic Games. But all these activities are being restarted, even as we speak. China’s energy needs keep growing exponentially, which bodes well for the demand for steel for the new power plants. Out in China’s provinces, these needs are even more critical today, demanding that the construction of new plants and transmission lines – all of which require steel – get under way immediately. China’s Baosteel Group Corp. barely reduced prices to deal with its temporary oversupply. Japan and India did the same.

The Middle East slowed down construction for the summer, as usual, given the high temperatures and other seasonal factors. But South Korea’s steelmaking leader, POSCO Ltd. (NYSE:PKX), a favorite of U.S. investing guru Warren Buffett, saw no need to reduce prices. And Germany’s Salzgitter AG actually has increased prices, despite all the news about a supposedly slowing economy.

And while India’s economy has seen its growth slow to a still-robust annual pace of 7% to 8%, new steel mills are being planned in order to be able to keep up with that country’s massive infrastructure needs, for which no slowdown is seen.

Horacio Marquez Says Buffett’s Berkshire Is a Bargain

Horacio Marquez — Mon, 25 Aug 2008 14:51:22 +0000

Since March, shares in Warren Buffett’s investment vehicle, Berkshire Hathaway (NYSE:BRK.A, BRK.B), have plunged 23%.

The Class A shares closed Friday at $116,650 each, down from their 52-week high of $151,650 (the Class B shares represent 1/30th of the Class A shares).

However, Money Morning’s Horacio Marquez says Berkshire’s share price is merely a reflection of the slowdown in the US economy. And with shares now at bargain prices, it’s a perfect opportunity to take a stake in one of the best investment portfolios on the planet…

The Return of ’70s Inflation or ’30s Deflation?

Bill Bonner — Fri, 27 Jun 2008 13:38:27 +0000

Editor’s Note: Bill Bonner wore a brown polyester shirt in the ’70s. The polyester shirt is gone, but ’70s-style inflation is back. So is ‘30-style deflation, says Bill. The Fed is doing it’s best to combat deflation by juicing up the markets with more easy money. But in doing so they’re pushing the price of commodities through the roof…

Bill could be right. He’s certainly in good company. Warren Buffett is worried that the US is in the grip of stagflation.

“We’re right in the middle of it right now,” said Buffett in an interview on Bloomberg Television today. He also said “the ‘flation’ part will heat up” and “the ’stag’ part will get worse.”

However, “stagflation might not be the bogeyman for stock and bond markets that it’s cracked up to be,” says Canada’s The Globe and Mail.

The newspaper is referring to a report by Tobias Levkovich, a chief equity strategist at Citigroup Global Markets Inc. in New York. Levkovich has looked at periods of stagflation over the past 40 years and returns during those years by various investment asset classes.

According to The Globe and Mail: “He found that U.S. stocks and bonds were actually top performers during those periods, outpacing gold, oil, industrial commodities and residential real estate.”

Stayin’ Alive in the New ’70s

By Bill Bonner

People who believe that history repeats itself are asking themselves: Is this a rerun of the ’30s…or a replay of the ’70s. Is it a deflationary recession we’re rehearsing? Or an inflationary recession? How is this story going to turn out?

We look around. We don’t see any breadlines… and people aren’t dressed nearly as well as they were in the ’30s. But now people get their free food through plastic “Independence” cards… proving that they are 100% dependent on the taxpayer for their daily bread. And as for dress… what do we know? If people like wearing flip-flops, pedal pushers, and shirts with reptiles on them, does that change the plot or alter the outcome?

It doesn’t look like the ’70s either. No afro hairdos…no muscle cars…no polyester shirts. (We had one…a brown one with white stitching. It clung to our manly, young body and almost electrocuted us each time we took it off. Elizabeth threw it away the first time our back was turned.)

Still, the economy is beginning to look a little like the ’70s.

“Stagflation fears vexing Bernanke,” says the Chicago Tribune.

“Spectre of inflation returns to global economy,” adds a front-page headline on the Financial Times.

In the following reckoning we don’t disagree. But we add a much-needed nuance. Not only is the spectre of ’70s inflation haunting the economy…so is the spectre of ’30s deflation.

Check out this headline: “Biggest drop in housing since Great Depression.”

Yes, dear reader, get ready for a whiter shade of pale, as the two apparitions join in a ghostly hullabaloo. To the question — which will be have, inflation or deflation? — we have consistently replied, ‘both.’ And la voila — here they are.

But we’re no longer alone in this opinion. Yesterday, the world’s greatest investor and richest man, Warren Buffett, agreed with us.

“Stagflation,” he said, was becoming a bigger and bigger problem. “I think the ‘flation’ part will heat up and the ’stag’ part will get worse.”

The Financial Times saw its inflation ghost in the huge price increases announced by Dow Chemical (NYSE: DOW) and South Korea’s Posco (NYSE: PKX). The former is America’s biggest chemical group; the latter is the world’s fourth biggest steel maker.

Meanwhile, said Mr. Charles Holliday, CEO of Dupont (NYSE: DD), and not putting too fine a point on it:

“Inflation is here big time.”

You think you’ve seen inflation, said a spokesman for mining giant BHP Billiton (NYSE: BHP). You ain’t seen nothing yet. On Monday another mining group, Rio Tinto (NYSE: RTP) announced a price increase of 96.5%. Billiton said that even that would not be enough; it signaled a price increase of over 100%.

“Now,” as Crocodile Dundee might have put it, “that’s inflation.”

“The sustained rise in the price of oil and commodities has hammered industries such as airlines and carmakers, and deepened fears of a global inflationary spiral as producers pass on higher costs to manufacturers and consumers,” the FT figures.

The Reuters CRB index is up 45% in the last 12 months. So far this year oil is up 42%. Natural gas has risen 76%. Corn has popped 58%. Soybeans 26%. Base metals are up about 30%.

Buffett is right…the ‘flation’ part is heating up. You see it in the newspapers, the check lines and, prominently, at the gas station. But what about the ’stag’ part?

Little noticed among all the noise and smoke is the way the two ghosts — of ’30s deflation and ’70s inflation — join forces. As we explained yesterday, expensive energy is destroying the suburbs. That’s not all, as Americans are forced to pay more for fuel, they pay less for other things. The whole retail sector suffers. And much of the hospitality industry; this year Americans are planning on taking ’stay-cations.’

The Fed tries to jolly things up with more money and credit, but what happens? Oh, cruel, cruel fate! The money feeds into other economies… and into the prices of commodities. Then, as fuel, food, and raw materials bills go up… the extra expenses weigh down the economy like a concrete block tied to a corpse in the East River.

Yes, dear reader, the ghost of ’70s inflation frightens the economy… only to be followed by the ghost of ’30s deflation. Between the two of them, they’re going to scare the living daylights out of us.

Source: Stayin’ Alive in the New ’70s

Rio Secures 97% Iron-Ore Price Increase… BHP Seeks More

Jason Simpkins — Thu, 26 Jun 2008 11:54:46 +0000

Steelmakers throughout Asia cringed earlier this week when they heard the news that Aussie mining giant Rio Tinto PLC (ADR: RTP) had secured a 97% price increase for its iron-ore.

But getting Rio out of the way was only half the battle, because now steelmakers are forced to confront BHP Billiton Ltd. (ADR: BHP) and its chief executive, Marius Kloppers, who may not be so easily placated.

It was Kloppers who first launched the campaign to charge Asian steelmakers a freight premium based on Australia’s proximity to the market. At the time, Kloppers was just the chief commercial officer at BHP and lacked enough clout to drum up support for his plan. But as the price of iron ore escalated, Rio Tinto came around and backed Kloppers’ play this year, forcing Chinese steelmakers to pay the a convenience premium for Australian ore.

Monday, Rio and Baosteel Group Corp., China’s largest steelmaker, announced they had reached an agreement to raise iron-ore contract prices by 80% to 97%. That bested Brazil’s Vale (ADR: RIO) which earlier secured a 70% increase for the price of its ore. It was the first time Chinese buyers ever agreed to pay more for Australian ore than supplies from Brazil.

Many analysts believe it’s only a matter of time before BHP follows suit and signs on to the same 97% price increase obtained by Rio. But not everyone is so sure.

Recent remarks from BHP executives have indicated that the company isn’t satisfied with the increase, and may hold out for more.

“We are delighted to see that progress,” Marcus Randolph, chief executive officer of the ferrous and coal units of BHP, said Monday at a presentation in London. “It doesn’t cover the full $40 to 50 difference on freight.”

“The freight differential has been $55 to $60, while their settlement implies a premium for freight of a little under $7.50. It’s an improvement but it hasn’t closed the gap,” Randolph said.

Aside from a higher freight premium, BHP is seeking to abolish annual contracts entirely and shift to a system based on spot prices.

“The beauty of an index is that it doesn’t result from a wrestling match between buyer and seller about what’s fair,” Randolph said. “It actually results from a large number of trades that occur between independent parties.”

However, the Asian steelmakers negotiating with BHP don’t seem inclined to give up anymore than they already have.

“There are big differences between what we want and what they are requesting,” South Korea’s Posco (ADR: PKX) said earlier this week referring to negotiations with BHP.

One official familiar with the talks recently told Bloomberg News that any attempt by BHP to link contract prices to higher spot prices would be rejected.

While neither party would like this standoff to last a moment longer than it has to, it seems clear that BHP will not be satisfied to merely accept terms equal to those agreed on by rival Rio Tinto.

Source: Rio Strikes While the Iron is Hot, but BHP Holds Out for More

Popular Stock Indicator Tells Investors to Hit the BRICs

Jennifer Yousfi — Mon, 02 Jun 2008 15:06:49 +0000

Global investors seeking undervalued markets might want to look at Russia, China, India, Malaysia, South Korea or Brazil. And if they want to avoid overvalued markets, they’d be best to eschew Italy, the United States, Japan, Canada, Switzerland, or Germany.

What’s tipping us off? The so-called Price/Earnings-to- Growth ratio, better known to investors as the “PEG” ratio.

Let me explain …

One of the most popular stock valuations is the Price/Earnings (P/E) ratio. If you take that calculation one step further and include a stock’s expected growth rate you hit on the P/E-to-growth ratio, or PEG ratio.

Analysts have been using PEG ratios for years, now, to pick undervalued stocks, but now you also can use that same ratio to determine which countries are trading at good value.

A recent Bespoke Investment Group report used the popular PEG ratio to identify which country’s stocks are currently undervalued.

“Late last year, we began performing this analysis on countries to get a better comparison of the valuations of both developed and emerging markets,” the B.I.G. Tips report read. “To do this, we divide the country’s [gross domestic product] growth estimate into the estimated P/E ratio of its major stock market index.”

Like an individual security’s PEG ratio, the lower the ratio, the more undervalued the stock.

The top-three spots on that list go to Russia (1.37), China (1.91) and India (2.06). Brazil clocks in at sixth with 2.80. Money Morning readers may recognize them as member of the “BRIC” nations – a term coined by Goldman Sachs Group Inc. (GS) in 2003 identifying rapidly growing emerging economies (Brazil, Russia, India, China). [For a complete listing of the PEG ratios of the respective countries, please see the chart below.]

Rounding out the top six are Malaysia (2.37) and South Korea (2.66), the latter of which is another investing favorite of both Money Morning and Warren Buffett, chairman of Berkshire Hathaway Inc. (BRK.A, BRK.B).

The United States, on the other hand, comes in near the bottom with an estimated PEG ratio for 2008 of 11.39.

When using the calculations to make investment picks, it’s important to remember that both the P/E ratio and the 2008 GDP growth are only estimates. Still, it’s easy to see how fast-growing economies have the leg up on more mature markets such as Japan and the United States.

How to Play the PEG for Profits

One of the easiest ways for U.S. investors to cash in on a foreign country’s expected stock market growth is with an American-listed exchange-traded fund (ETF) or exchange-traded note (ETN) that mirrors a foreign stock market index.

For the BRICs, you could try the iShares MSCI Brazil Index (EWZ), the Market Vector Russia ETF Trust (RSX), the Barclays IPath India Index ETN (INP), or the iShares FTSE/Xinhua China 25 Index (FXI).

If you prefer to stick to individual securities:

Russia: OAO Gazprom (OTC: OGZPY), the state-owned natural gas monopoly with ambitions to control Western Europe’s gas supplies.

Lukoil (OTC: LUKOY), the other obvious Russian heavyweight, is the largest state-controlled oil company.

China: A terrific way to play China is with the Region Opportunity Fund (USCOX), a mutual fund run by San Antonio-based U.S. Global Investors Inc. (GROW). Indeed, U.S. Global, itself, is a pretty good play on international growth. It manages some of the best emerging-market funds, and natural-resources funds, in the business. As global growth fuels global investments – and it will – U.S. global will see more money pour into its funds, boosting the management fees it collects, as well as its profits and stock price.

India: One of India’s titans is Tata Motors Ltd. (TTM), which recently sealed both ends of the consumer automotive spectrum with its forthcoming $2,500 Nano and its recent $2.3 billion acquisition of the Jaguar and Land Rover brands.

Another is option could be the pharmaceutical company Dr. Reddy’s Laboratories Ltd. (RDY). As many U.S. pharmaceutical patents expire in the next five years, this major generic-drugs manufacturer can expect to benefit.

South Korea: Back in October 2007, Buffett took a 4% stake in this country’s Number One steelmaker, POSCO Ltd. (PKX). Studies have shown that following Buffett’s investment moves, even months after the fact can be the pathway to profits.

Brazil: Companhia Vale do Rio Doce, now referred to only as Vale (RIO), is an iron-ore company with ancillary operations in gold, nickel, copper and other metals. It’s one of the true global blue chips, with a market capitalization of almost $200 billion.

Another Brazilian firm worth a look is Petrobras (PBR). It’s one of the few emerging market oil companies with access to modern technology – and the willingness to work with the oil majors.

With New Leadership And a Tougher Stance, it’s Time For Investors to Take a Look at Korea

Martin Hutchinson — Wed, 16 Apr 2008 12:49:11 +0000

Amid all the gloom investors are feeling right now, South Korea has produced some sunny rays. On April 9, the Asian Tiger suggested that its economy could accelerate and that its stock market could take off. The splendidly named Grand National Party, allied to the new President Lee Myung-bak, won a majority in the local legislature, taking about 153 of the 299 seats itself and having allies and friendly independents that hold roughly another 40 seats. The center-left opposition – in power both presidentially and legislatively until last December – was reduced to around 70 seats.

You may reasonably ask why you should care. There are, after all, about 183 countries in the world, perhaps 100 of which are more or less democratic in nature, which gives you roughly 30 elections a year to worry about. Figuring out who are the “good guys” in that number of races is absolutely impossible – even in Korea, which is one of our more-important trading partners.

Every now and then, however, an election brings a change that is truly significant, either politically or economically. In Korea, this election has brought significant positive economic change.

Since the Asian crisis of 1997, Korea has been run by the center-left. That group didn’t do too bad a job: Economic growth ticked along at an average annual rate of between 4% and 5%. The per-capita growth rate is about the same, given that Korea has only 0.4% per annum population growth. There’s a budget surplus, and the country also boasts a balance of payments surplus. Overall inflation is only 2.5%. The stock market is around double its 2003 level, which is when the previous [and now-outgoing] government came into power.

As nice a job as the outgoing government managed to do, its policies also included a few that held back growth. For instance, government spending rose from 21% of Gross Domestic Product (GDP) to 28% over the decade the left was in power. That increase in government outlays saps resources from the private sector by diverting the resources into less-productive public sector uses – reducing the economy’s overall productivity growth.

The outgoing government also imprisoned the chairmen of three of Korea’s top six chaebol conglomerates, and placed severe restrictions on their expansion. SK Telecom Co. Ltd. (SKM), for example, part of the Sunkyong Group, was not permitted to increase its cell-phone market share significantly above 50%. Only after Lee’s presidential election victory in December did restrictions start to relax. In February, SK Telecom was permitted to acquire 44% of its competitor, Hanarotelecom.Inc. (OTC: HANAY).

However, President Lee’s more free-market approach seems likely to ratchet Korean growth up a notch. He ran for election on the platform that Korea should expect a growth rate of 7% – not 5% – and with a budget surplus and low inflation rate he is well positioned to deliver his goal. Lee has promised both corporate and individual tax cuts, and a major program of privatization, starting with three state-owned banks – including the Korea Development Bank.

He is also likely to take a tougher stance toward the potentially volatile leadership in North Korea, cutting back on handouts and adopting a harder line against its northern neighbor’s alleged nuclear-weapons programs. This newfound aggressiveness by the South Korean leadership will save money both for the government and for the big conglomerates, since they had been expected to undertake unprofitable prestige projects in the North.

There are five Korean stocks that have American Depository Receipts (ADRs) that are fully listed on the New York Stock Exchange and that trade in reasonable volume. Some of these are more attractive than others-Kookmin Bank and SK Telecom in particular seem especially good bargains. Let’s take a look at each of the five, starting with an overview and including an investment rating on the shares:

Kookmin Bank: (KB): The largest bank in Korea, KB has been hit by investor disillusionment with the financial services sector; at one point it was down 50% from its 2007 high. However, the stock has rallied recently. The bank’s earnings have continued to make steady progress and it has no exposure to the U.S. subprime mortgage market. Kookmin’s shares are trading at a Price/Earnings ratio of only 7.5 on trailing 12 months’ earnings, and its P/E on projected earnings for the next 12 months is a staggeringly low 6.6. Those earnings are expected to increase in a big way. One last benefit: Kookmin’s shares feature a dividend yield of 4%, which is more than you’ll get out of Treasuries these days. Rating: “Strong Buy.”

Korea Electric Power Corp.: (KEP): Shares of the Korea’s electric power company are up slightly from where we recommended them back in December. The shares feature a P/E of 11 on projected earnings, and a dividend yield of 2.4%. KEP’s steady growth should benefit from any acceleration in Korea’s economic growth rate, but it is forced to buy coal from overseas, which has doubled in price in the past year. With an election in the offing, it suffered from price controls in the latter part of 2007, but should presumably have more freedom to raise its tariffs going forward. Rating: “Hold.”

KT Corp.: (KTC): Formerly Korea Telecom, KT is now Korea’s leading “fixed-line” telecommunications provider, which was privatized in 2002. While the P/E ratio on trailing earnings is less than 9, its forward P/E is 11.5 as its margins are under assault from the hyper-competitive Korean telecom market. It has a dividend yield of 4%. Rating: “Hold.”

Posco: (PKX): Korea’s largest steel company, and the world’s most-efficient steelmaker, Posco’s shares sport a Price/Earnings ratio of about 11, and a dividend yield of 2%. The company is a major exporter into China, making it a key participant in that country’s explosive growth. The company does buy its iron ore from Brazil’s Vale (RIO), and was socked with a 65% price increase in this crucial raw material. But don’t forget that investment guru Warren Buffett made Posco one of the 20 Korean companies he invested in last year. If nothing else, that’s a reminder that Posco will become very attractive when the commodities bubble deflates, even though it may be a tad early to make your move right now. Rating: “Buy/Hold.”

SK Telecom: (SKM): It’s Korea’s largest mobile phone company, with operations in China and Vietnam. The stock is now trading at only 8.7 times estimated 2008 earnings, and has a hefty 4.9% dividend yield – so income investors do well from it, also. For many years, its market share in Korea was capped at 50%. But now the shackles are coming off; in fact, SKM recently got the green light to buy 44% of Hanarotelecom, Korea’s second-largest cell phone company. In 2006, SKM invested in a $1 billion convertible offering for China Unicom, Mainland China’s No. 2 mobile-phone company; in August 2007, the bonds were converted into a 6.6% in China Unicom with a current value of almost $2 billion. In Vietnam, SKM’s 73% owned Vietnamese subsidiary had 3.5 million subscribers in 2007, and it’s now aiming for 5 million in 2008. Only its U.S. operations are showing losses, but even those could turn around. Rating: “Buy.”