Buffett's Call on Railroads Right on Track

Railroad companies represent a compelling investment despite the run-up in the stock prices of major U.S. players in the industry, such as Warren Buffett favorite Burlington Northern Santa Fe (BNI), of which Berkshire Hathaway (BRK.A) owns nearly 64 million shares for an 18% stake.

Railroad companies have pricing power as increased demand for the fuel-efficient transport of energy and agricultural commodities is combined with limited near-term ability to increase rail transport capacity due to the labor and capital intensive nature of the business. 

Global Railroad Index Stats & Top 5 Companies by Market Cap

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As illustrated in the accompanying tables, the performance of the Global Railroad Index was driven primarily by the four domestic rail giants, Union Pacific (UNP), Burlington Northern, Norfolk Southern (NSC), and CSX Corp. (CSX), resulting in a 13.6% market cap-weighted gain for the 37-company index versus a slight loss of 0.6% on an equal-weight basis over the past year.

The index includes companies over $200 million market caps which are involved in rail transport, infrastructure, and railcar/locomotive manufacturing. The four major domestic rail companies also comprise over 30% of the stock holdings in the iShares Dow Transports ETF (IYT), reflecting both the growing importance of rail transport to our economy and the rise in the stock prices of these companies.

 

Disclosure: None

Comments

[CrossProfit:]

Just to give some perspective to this article, Buffett started accumulating BNI in April 2007 through August 2007 at an average price of about (approximation) $85 per share.

CrossProfit

2008 Sep 15 07:13 AM

[WEBISKING:]

Buffet is ALWAYS RIGHT when he invests a billion or more

2008 Sep 15 07:38 AM

[Uncle Larry:]

The railroad transportation market is a great market. I have been in it for years, BUT the list of railroads is way, too short.
GWR - up 50% - no dividend
KSU - up 52% - no dividend
CNI and CP have been flat for the last year, but CNI is up 100% over the last 3 years and will probably take a big jump as soon as its problems are resolved about acquiring the rail line around Chicago.

2008 Sep 15 09:05 AM

[whidbey:]

The taste for rails seems timely, what with energy so dear, and the possibility there will be fewer trucks. Will they build more sidings and add passenger trains? God knows they should, and would'nt you know that Warren would see it coming before anyone. I would worry a little that it might not be the killing he expects, unless he is after the rights of way which is very limited. I think I will follow him in.

2008 Sep 15 09:24 PM

[Pipo:]

Warren increased his stake in railroad Burlington Northern Santa Fe recently. Visit a good Buffett`s blog at:


warrenbuffettstocks.bl.../

2008 Nov 01 08:36 AM