Buffett Buys More BNI

Warren Buffett’s Berkshire Hathaway Corp (BRK.A) disclosed yesterday that it had increased his Burlington Northern Santa Fe Corp. (BNI) stake by nearly 16% with the purchase of more than $271 million worth of BNI shares on the open market in the past 5 days.

Burlington Northern, whose stock has plunged 21% since Buffett’s last investment in October 2008, engages primarily in the freight rail transportation business. It transports various products and commodities, including consumer, industrial, coal, and agricultural products. The shipments of consumer products include automotive, such as motor vehicles and vehicle parts.

The company also offers transportation services for industrial products, including construction products, such as clays, sands, cements, aggregates, sodium compounds, and other industrial minerals; building products comprising lumber, plywood, oriented strand board, particleboard, paper products, pulpmill feedstocks, wood pulp, and sawlogs; petroleum products, such as liquefied petroleum gas, diesel fuels, asphalt, alcohol, solvents, petroleum coke, lubes, oils, waxes, and carbon black; chemicals and plastic products, including caustic soda, chlorine, industrial gases, acids, polyethylene, polypropylene, and polyvinyl chloride; and food and beverages, such as canned goods and perishable food items, as well as cotton, salt, rubber and tires, and miscellaneous boxcar shipments.

Buffett’s railroad bets have been devastated by both the economy and sinking energy prices, the latter of which erodes the competitive fuel saving benefits of transporting goods via rail. Buffett’s latest purchase indicates that he believes oil prices are not going to stay this low for very long, which I believe most economists would agree with.

If you believe Buffett knows what he’s doing, you could ride Buffett’s coattails and invest in Burlington Northern (which Buffett now owns 20% of), knowing full well he will guard his $4.6 billion investment vigorously. Who knows, it might be one of the best (and safest) bets on the market today. Not to mention you get a solid 2.5% dividend while you wait for the economy to turn around.

Disclosure: Freund Investing Managing Member Ryan Freund holds no position in any of the companies mentioned in this article. Freund Investing has a solid Disclosure Policy.

Comments

[iggyDalrymple:]

America's great advantage over emerging economic powers such as China and Brazil, is our developed transportation infrastructure. One impediment to further improving our transportation infrastructure has been the refusal of railroads to grant easements across their right-of-ways to pipelines.

Assuming no antitrust problems, it would seem that a great combination for a large railroad to merge with a large pipeline, permitting new pipelines to be built along existing rr right-of-ways.

Jan 21 12:20 PM

[Glen Bradford:]

It looks like you don't believe in Buffett. That's really just too bad.

Jan 22 12:25 AM

[Augustus:]

Isn't Buffett the wizard of Omaha who accumulated a big chunk of Wells Fargo? What would that share price be if Buffett was not defending it so vigorously? You can count on the wizard to keep the price at a reasonable level, that is for sure.

Jan 22 12:55 AM

[donzelion:]

While I believe in Buffett's savvy, I don't believe others have emulated him well. Nearly every "Buffett-lite" fund has underperformed him dramatically, even though ostensibly, they hold comparable assets. Buffett's tricks involve not only spotting promising targets - but also executing on terms that maximize upside while minimizing downside (witness the dividend + option in his GE/Goldman buys). Meanwhile, the fact that he is buying actually changes the market - so you'll seldom get the same terms.

If you believe in Buffett's picks, buy Buffett (or Berkshire) - and don't bother trying to emulate his model. If you think you're smarter than Buffett, buy what Buffett buys at a discount (and hope that's all it takes to outperform him). And if you believe in America's railroads - buy the best (and Burlington seems like a good one).

Jan 22 01:26 AM

[Michael Del...:]

"Isn't Buffett the wizard of Omaha ...."

He's not a wizard. He's an Oracle.

Jan 22 03:54 PM