In November 2009, Warren Buffet’s Berkshire Hathaway agreed to buy the Burlington Northern Santa Fe (BNSF) railroad for $34B. The railroad is the largest second largest railroad in the country and is also the biggest mover of food products like corn and coal.
As one of the largest railroads, BNSF also transports the large amount of consumer goods from west coast ports to destinations across the country. At that time Buffet said that it was a huge bet on the future on the U.S. economy. Buffet added “They do it in a cost-effective way and extraordinarily environmentally friendly way,” he told CNBC. “I basically believe this country will prosper and you’ll have more people moving more goods 10 and 20 and 30 years from now, and the rails should benefit.”
Despite the growth of the trucking industry due to the interstate road network, railroads are the largest carrier of all types of goods and commodities since they transport them cheaply and efficiently. For example, most of the electricity generated in this country comes from coal and railroads deliver coal to the utility companies efficiently.
Generally the transportation sector is a good indicator of the U.S. economy. Railroads especially track the ups and downs of the economy. The monthly report from AAR mentioned that in December 2009 carloads were down 4.1% from 2008 and 17.6% from 2008.There was slight improvement in traffic according to the weekly report released on January 28th.
From the report:
The Association of American Railroads today reported that freight traffic is showing slight improvement in the year over year comparison but remains down sharply when compared to 2008. For the week ending Jan. 23, 2010, U.S. railroads originated 277,420 carloads, up 3.9 percent compared with the same week in 2009 and down 11.1 percent from the same week in 2008.
Regardless of how railroads perform in the short-term, railroad stocks are great for long-term investment. They transport some of the necessary goods such as coal, food grains, etc. that are in demand whether the economy is in recessionary or in expansion mode. Similarly when the economy improves they benefit from transporting large quantities of consumer goods that are exported from China to the U.S.
The List of Railroad Stocks Traded on the New York Stock Exchange:
|1||Burlington Northern Santa Fe Corporation||BNI|
|2||Canadian National Railway (USA)||CNI|
|3||Canadian Pacific Railway Limited (USA)||CP|
|5||The Greenbrier Companies||GBX|
|6||Guangshen Railway Co. Ltd (ADR)||GSH|
|7||Genesee & Wyoming Inc.||GWR|
|8||Norfolk Southern Corp.||NSC|
|9||Union Pacific Corporation||UNP|
Three of the stocks listed above foreign railroads. Canadian National Railway (CNI) and Canadian Pacific Railway Limited (CP) are the largest railroads in Canada. They move the majority of natural resources, cars, food grains, etc. from Canada to the U.S. Canadian Pacific primarily operates on the western parts of Canada and the U.S. while Canadian National dominates the eastern parts of the country. Guangshen Railway Co. Ltd (GSH) is a Chinese railway company that is engaged in both passenger and freight transportation.